“Exclusive forum” bylaws and charter provisions are a powerful tool for managing the risk of parallel corporate governance litigation against a company and its directors in multiple forums, allowing stockholders to bring such litigation but requiring that they bring it in one specified jurisdiction, typically the company’s state of incorporation. The Delaware Chancery Court, in its 2013 Chevron decision, held that such provisions are generally enforceable, and courts in several other states have dismissed stockholder litigation based on Delaware forum selection provisions. As a result, more companies are adopting such provisions.
We have previously noted that public companies may wish to consider adopting such provisions, either as part of their general corporate governance regime or when they see events on the horizon — such as a potential M&A process — that may spur intra-corporate litigation, and reviewed several of the factors, including potential stockholder reaction, that companies might want to take into account. Two conflicting recent decisions highlight the potential significance of the timing of enactment of exclusive forum bylaws, relative to the timing of the actions that may be the subject of litigation.
Originally published in NYSE Governance Services on October 5, 2014.
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