Fee Shifting Bylaws and the Reaction of Institutional Investors (Part 1)

Whats the latest in the controversy over fee shifting bylaws?

Since the Delaware's approval of the bylaws in ATP, the number of companies adopting them have proliferated. Most have adopted them as bylaws.  Some,  however, have inserted them in their articles, something that can be done just before going public or when seeking shareholder approval of a reorganization.  

The Delaware courts have not definitively ruled on the validity of these bylaws in the context of for profit companies.  The Delaware legislature has tabled but not definitively determined whether to act with respect to these bylaws.  Other possible responses may come from the states (see Oklahoma), from the SEC, or, eventually, from Congress.  For now, however, the Delaware legislature and private ordering are the most immediate areas where, in the short term, some type of response is possible. 

In that regard, the issue has begun to attract the attention of investors.  A group of institutional investors wrote letters to policy makers in Delaware and proxy advisory firms in connection with fee shifting bylaws.  They included letters to Governor Markell and Norman M. Monhait, Chair of the Delaware Bar Association's Section of Corporation Law and  Bryan Townsend, Legislative Hall Office, and letters to Robert McCormick, Chief Policy Officer, Glass, Lewis & Company, LLC Martha Carter, Global Head of Research Institutional Shareholder Services, Inc.  

Institutions signing onto the letters are a wide cross ection that includes APG Asset Management NV, California Public Employees’ Retirement System, Colorado Public Employees’ Retirement Association, Office of Connecticut State Treasurer’s Office, Florida State Board of Administration, Houston Municipal Employees Pension System, Pension Reserve Investment Management Board Commonwealth of Massachusetts, Middlesex County Retirement Board, MN Services, The New York City Employees’ Retirement System, The New York City Police Pension Fund, The Board of Education Retirement System of the City of New York * The Teachers’ Retirement System of the City of New York, The New York City Fire Department Pension Fund, The Teachers’ Retirement Systems’ Variable A, North Carolina Department of State Treasurer, Oregon State Treasurer’s Office, PGGM Investments, and San Diego City Employees' Retirement System.

We will discuss these letters in the next few posts.  Copies of the letters can be found here.