— AIM ImmunoTech: AIM ImmunoTech Inc. adopted a complex, 1,099-word sentence by-law provision in the face of recurring nomination notices made by a group of activists. The Supreme Court of Delaware found that the provision was so complex that it had to be invalidated for being “indecipherable.” The Supreme Court noted that an unintelligible by-law is invalid under “any circumstances.” BCSC Sets High Bar to Find Joint Actor Relationship In a win for shareholders, the BCSC released important guidance on “acting jointly or in concert” in a proxy contest. In NorthWest Copper Corp. (December 22, 2023), the BCSC declined to find a joint actor relationship between a dissident shareholder and another shareholder, notwithstanding that the latter had funded the dissident’s proxy contest to replace an incumbent board and had selected one of the nominees included in the dissident’s slate. A JOINT ACTOR FINDING REQUIRES “CLEAR, CONVINCING AND COGENT EVIDENCE” Although the BCSC’s final conclusions were fact- specific, in reaching its decision it noted that a party alleging a joint actor relationship must provide clear, convincing and cogent evidence to support a finding of joint acting—not mere speculation or inference. Significantly, the Commission stated that a high bar to a joint actor finding must be set in order not to stifle the “free flow of information and opinion among shareholders,” even if that means some joint actors “will fly under the radar.” For persons to be found acting jointly or in concert in connection with the solicitation of proxies for voting on a dissident slate, generally such persons must be found to be operating with a common specific purpose and with a
4. Strict Requirements and Board Discretion: ISS recommends that advance notice provisions should not require the nominating shareholder to be present at the shareholders’ meeting, whether in person or by proxy, and the nominees should not be required to agree, in advance of election, to comply with the director policies and guidelines of the corporation. In addition, ISS requires that boards retain ultimate discretion to waive any or all sections of the advance notice provision. 5. Clarity and Simplicity: By-laws should be drafted clearly and concisely.
RECENT LESSONS FROM THE U.S.
While Canadian boards operate under different legal standards, recent U.S. case law offers cautionary tales for Canadian boards: — Masimo Corporation: Masimo Corporation adopted by-law amendments in the face of a proxy contest brought by Politan Capital. Politan challenged the by-laws before the Court of Chancery of Delaware. The amendments required disclosure of highly confidential and potentially proprietary information that, in practice, would have operated to deter investment funds from making director nominations to the board. Masimo’s by-law amendments sparked outrage among seasoned activist investors and prompted the Managed Funds Association to file an amicus brief urging the Delaware Chancery Court to find the by-laws to be unenforceable because they were “designed to discourage shareholder engagement.” Ultimately, and in the face of mounting pressure, Masimo reversed its by-law amendments, rendering the case moot. The case underscores the importance of balancing the company’s need for information with a shareholder’s right to nominate directors without undue hindrance.
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Governance Insights 2024
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