Modern Communication Technologies and Corporate Governance

Delaware has maintained its preeminence as a corporate forum of choice, in large part, by being responsive to the evolving needs of the corporate community.  One aspect of that responsiveness has been the periodic evaluation and updating of Delaware’s General Corporation Law (the "DGCL").  The July 2000 amendments to the DGCL arguably are among the most significant of the last decade or more, primarily due to the practical impact they promise to have on the nature of corporate governance.

The so-called "technology amendments" bring the DGCL squarely into the 21st century by enabling corporations to use innovative forms of technology in the conduct of their affairs.  For example, an amendment to Section 211 (Meetings of Stockholders) places discretion in the hands of the board of directors to permit stockholders to attend and participate in meetings by remote communication.  Indeed, meetings of stockholders now may be conducted entirely by remote communication, without a physical venue.  Board action, too, may be taken using a variety of advanced technologies, such as consents of directors by means of an "electronic transmission."  Consequently, it is now clear that directors may act via e-mail.  Similarly, amendments to Section 228 permit the use of electronically transmitted stockholder consents, and align Section 228 with Section 212(c), governing electronic proxies.

Although the amendments have received general widespread attention, little has been written discussing the steps that might be necessary or advisable to enable individual companies to take full advantage of the flexibility afforded by the amendments.  Like many of the provisions of the DGCL, the new provisions involving advanced communication technologies are permissive, rather than mandatory.  Whether and the extent to which a particular corporation will choose to utilize the technologies now permitted is a matter left primarily to the discretion of the board of directors.  While in many instances boards may be able to implement procedures utilizing advanced technologies by way of resolution, as a practical matter, many Delaware corporations will need to review and revise pertinent portions of their bylaws, and perhaps their certificates of incorporation, in order to avail themselves of the new statutory authority.  This is due primarily to the fact that the certificates of incorporation and bylaws of many Delaware corporations contain provisions that reflect the language and provisions of the DGCL as in effect prior to the amendments.[2]  Absent amendment to the relevant governing documents, the out-dated provisions may continue to control. Consequently, any corporation considering implementation of any of the technologies now permitted by statute should evaluate the extent to which changes to its governing documents may be necessary or desirable.

Part I of this article highlights the significant technology amendments[3] and focuses corporate counsel on certain of the provisions of a corporation’s governing documents that may need to be amended in order for the corporation to avail itself fully of the new statutory flexibility.[4]  Part II discusses certain practical ramifications and potential risks and rewards for companies seeking to integrate modern technology into their corporate governance.

Sections 141(b) and (f) of the DGCL have been amended to permit the directors of a Delaware corporation to submit consents and resign by means of "electronic transmission."[5]  Simply put, this allows a director to e-mail his or her consent to corporate action or resignation to the company in lieu of executing a document in traditional paper form.  In the case of consents, Section 141(f), as amended, provides that if the corporation maintains its records in paper form, the electronically transmitted consents must be printed and inserted with the minutes of the proceedings of the board.  If the proceedings of the board are maintained in electronic form, the transmission need not be printed (but it should be otherwise stored).  While Section 141 addresses the manner in which electronic consents are to be stored, it does not address the threshold matter of to whom they should initially be transmitted.  Prudence suggests that the bylaws specify a person or procedure or that the board otherwise adopt a standard policy in that regard.

In addition, Section 141(i) has been amended to delete the word "similar" and substitute the word "other" in its description of the types of communication equipment that may be used by a board of directors in conducting its meetings.  Previously, the statute permitted use of remote communications only if "similar" to communication by conference telephone.  It is thought that the word "other" provides more flexibility and will enable boards to utilize any form of communication between persons in different locations.  Practitioners should note that while communications equipment other than conference telephone may be used, the statute continues to require that all directors be able contemporaneously to hear one another.  Thus, a board meeting could not be held, for example, in an internet chat room that did not provide some type of audio feature.

Bylaw language such as the following is suggested for facilitating director action by electronic means:

Resignations. Any Director may resign at any time by giving written notice in writing or by electronic transmission to the Board of Directors or the Secretary; provided, however, that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the director.  Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein.  Acceptance of such resignation shall not be necessary to make it effective.

Manner of Acting. (a) Members of the Board of Directors, or any committee thereof, may participate in any meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating therein can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

(b) Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or such committee; provided however, that such electronic transmission or transmissions must either set forth or be submitted with information from which it can be determined that the electronic transmission or transmissions were authorized by the Director.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Note that the proposed provisions requiring director electronic transmissions to set forth or be submitted with information evidencing authorization of the transmission by the director are not required by the statute.  Accordingly, practitioners may want to consider whether more specific verification requirements or, perhaps, no verification requirements at all, would be appropriate for a particular corporation.  If more specific verification procedures are deemed appropriate, they might include, for example, evidence that electronic mail was sent from the electronic mail address of the particular director on file with the corporation or inclusion of a "digital signature" with the electronic transmission.

Commentators have given considerable attention to the amendments to Section 211(a) as they potentially could have a significant impact with respect to stockholder participation in corporate governance.  Specifically, Section 211(a) of the DGCL has been broadened to grant the board of directors of a Delaware corporation, in its sole discretion,[6] the authority to allow stockholders to attend and participate in stockholder meetings by means of remote communication.  Thus, where a corporation holds a stockholder meeting at a physical location and simultaneously transmits the proceedings by electronic means, such as the internet, stockholders will have the ability to attend and participate from remote locations.  The amendments even allow a board to determine that meetings of stockholders will be held without a physical location, but rather, entirely by remote communication.

If a corporation chooses to venture into the realm of cyberspace meetings, not only may stockholders attending by remote communication be considered present at the meeting for quorum purposes, but they also would be able to participate and vote at the meeting as if they were physically present.  Presence and voting by remote communication is permitted only if the corporation implements:

1. verification procedures to ensure that each person deemed present and permitted to vote is a stockholder or proxyholder of the corporation,

2. measures to ensure that such stockholders have an opportunity to participate in the meeting and vote, and

3. means to record the votes of such stockholders.

Section 211 does not, however, attempt to delineate the nature of appropriate verification procedures or define "reasonable opportunity to participate."  The reason for those omissions is two-fold.  First, the drafters intended to create broad language to allow for future advances in technology without a need for corresponding amendments to the DGCL.  Second, such determinations were viewed as better left to the discretion of the board of directors.

Also worthy of note is that Section 211(a)--in contrast to the provisions of Section 141(f) regarding board meetings by remote communication--does not require that stockholders participating in a meeting by remote communication be able to hear each other.  Thus, Internet chatroom sites presumably could serve as proper venues for stockholder meetings.  Chat room meetings, however, are not likely to be practical for public corporations or corporations with significant numbers of stockholders.  Such corporations, to the extent their boards allow remote participation by stockholders, are likely to utilize technologies similar to those already used by many public corporations that have allowed stockholders to view the proceedings of stockholder meetings (and in some instances even participate in the questions and answer sessions) via the Internet.

In order to foster active participation by remote communication, Section 211(e) has been amended to redefine the term "written ballot" to include ballots submitted by electronic transmission.  Finally, Section 211 also has been amended to eliminate the default mechanism which required that, absent a bylaw setting forth the location of the meeting, stockholder meetings must be held at the corporation’s registered office in Delaware.  As amended, the revised default mechanism under the statute provides that if the certificate of incorporation or bylaws fail to designate a place for stockholder meetings, then meetings shall be held at the place determined by the board of directors.

In order to avail itself of the ability to conduct stockholder meetings, in whole or in part, by remote communication, a corporation may need to amend provisions in its charter or bylaws relating to, among other things, annual and special meetings of stockholders.  For example, many existing bylaws require meetings to be held at a designated place or contain language that may preclude a stockholder from being "present" at a particular place by means of remote communication.  It may be advisable, therefore, to evaluate whether charter or bylaw amendments are necessary to vest discretion in the board to allow stockholders to participate in meetings by remote communication. The following bylaw provision is illustrative.

Annual Meeting.  The annual meeting of the stockholders of the Corporation shall be held on such date, at such time, and at such place, if any, within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting.  In lieu of holding an annual meeting of stockholders at a designated place, the Board of Directors may, in its sole discretion, determine that any annual meeting of stockholders may be held solely by means of remote communication.

Corporations also should consider adding a bylaw provision addressing the permissibility of stockholder attendance and participation in meetings by remote communication. Counsel may wish to consider the following, which is based largely on the amended provisions of Section 211 of the DGCL:

Remote Communication.  For the purposes of these Bylaws, if authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders may, by means of remote communication:  (A) participate in a meeting of stockholders; and

(B) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.

Prior to the July amendments, Section 219 of the DGCL required that the list of stockholders entitled to vote at any meeting of stockholders be available for inspection either (i) at a place of business within the city where the meeting is to be held or (ii) at the place of the meeting, and, in either case, for a period of at least 10 days prior to the meeting.  As amended, Section 219 requires that the stockholder list be made available either on an electronic network or at the corporation’s principal place of business during ordinary business hours.  If the list is made available on an electronic network, information necessary to access the electronic network must be set forth in the notice of the meeting.  If the meeting of stockholders is held entirely by remote communication, the list must also be made available during the meeting on an electronic network.  Notably, however, the amendments make clear that the corporation is not required to include e-mail addresses or other electronic contact information on such list.

Because the bylaws of many Delaware corporations contain a verbatim recitation of the former language of Section 219, corporate counsel should consider revising such provisions if the corporation wants to use an electronic posting to satisfy the requirement of making a stockholder list available. In the absence of such revisions, corporations with bylaw provisions tracking the prior statutory language may continue to be required to prepare stockholder lists as contemplated under the former statute.  We suggest the stock list provisions of a corporation’s bylaws be revised to correspond with the amendments to Section 219, as the following illustrates:

List of Stockholders Entitled to Vote.  At least ten days before each meeting of stockholders, the officer in charge of the stock ledger of the Corporation shall prepare a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the corporation.  In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation.  If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.  If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. 

Notice of Stockholder Meetings (Sections 222 and 232) and 
Waiver of Notice (Section 229)

As amended, Section 222(a) aligns the notice requirements for stockholder meetings with the Section 211(a) amendments and requires that notice of any meeting to be held without a physical location must specify the means of remote communication by which stockholders and proxy holders may be deemed present in person and may vote at the meeting.

Section 232 is an entirely new section of the DGCL that permits notice by a corporation to a stockholder to be given by a form of electronic transmission.[7]  A corollary change was made to Section 229, which now permits a waiver of notice to be given by electronic transmission.

While expressly not limiting other means by which notice effectively may be given, Section 232 provides that notice shall be effective if the stockholder has consented to the corporation providing notice by that particular form of electronic transmission.[8]  Section 232 further provides that notice by a means pursuant to which a stockholder has consented to receive notice is deemed given (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (a) such posting and (b) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder.  An affidavit of the secretary or other agent of the corporation that the notice has been given by a form of electronic transmission will, in the absence of fraud, be prima facie evidence of the facts stated therein.

Most existing bylaws specify particular forms of notice and methods of delivery, and sometimes contain terms that may render those forms and methods exclusive.  In all events, counsel should consider whether amendments to bylaw provisions governing notice of stockholder meetings may be advisable in view of the recent amendments.  For example, a corporation might consider the revisions to its bylaws similar to the following:

Notice of Meetings. (a) Notices of meetings of the stockholders shall state the place, if any, date, and hour of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting. In the case of a special meeting, the notice shall state the purpose or purposes for which the meeting is called.  No business other than that specified in the notice thereof shall be transacted at any special meeting.  Notice to stockholders may be given in writing or by electronic transmission as permitted by subsection (b) of this Section __.  If given in writing, notice may be delivered personally or by mailing such notice in a postage prepaid envelope directed to each stockholder at such stockholder’s address as it appears in the records of the Corporation.  Notice shall be given to each stockholder entitled to vote at such meeting not fewer than ten days or more than sixty days before the date of the meeting.  Notice of any meeting of stockholders need not be given to any stockholder if waived by such stockholder in writing or by electronic transmission, whether before or after such meeting is held; provided, however, that if such waiver is by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder.

. (a) Notices of meetings of the stockholders shall state the place, if any, date, and hour of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting.  In the case of a special meeting, the notice shall state the purpose or purposes for which the meeting is called.  No business other than that specified in the notice thereof shall be transacted at any special meeting.  Notice to stockholders may be given in writing or by electronic transmission as permitted by subsection (b) of this Section __.  If given in writing, notice may be delivered personally or by mailing such notice in a postage prepaid envelope directed to each stockholder at such stockholder’s address as it appears in the records of the Corporation.  Notice shall be given to each stockholder entitled to vote at such meeting not fewer than ten days or more than sixty days before the date of the meeting.  Notice of any meeting of stockholders need not be given to any stockholder if waived by such stockholder in writing or by electronic transmission, whether before or after such meeting is held; , , that if such waiver is by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder.

(b) Any notice to stockholders given by the Corporation shall be effective if given by a form of electronic transmission to which the stockholder to whom the notice is given has consented.  Notice given pursuant to this subsection shall be deemed given:  (1) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder.  An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the Corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

Stockholder Consents (Section 228)

Section 228 of the DGCL has long permitted stockholder action by written consent, except to the extent restricted or prohibited by the Certificate of Incorporation.  As amended, Section 228 permits stockholders to manifest their written consents by telegram, cablegram, or other electronic transmission.  This amendment harmonizes Section 228 with Section 212 of the DGCL, which since 1990 has specifically authorized the use of electronically transmitted proxies.  The amendment to Section 228 provides that electronic consents shall be deemed to be written, signed and dated so long as they include or are accompanied by sufficient information for the corporation to determine that (i) the consent was transmitted by the stockholder (or his proxyholder or duly authorized agent) and (ii) the date of the transmission. The consent is deemed to have been signed on the date it is transmitted.

Although stockholders now may transmit their consents by electronic means, consents may not be delivered electronically without express board authorization.  Under the revised statute, unless the board determines otherwise, consents are not effective until reproduced in paper form and delivered to the corporation by delivery to (i) its registered agent in the State of Delaware, (ii) its principal place of business or (iii) an officer or agent of the corporation having custody of the book in which proceedings of the meetings of stockholders are recorded.  Thus, for example, a stockholder soliciting consents may do so by e-mail, but those e-mails must be printed and then delivered to the corporation in order for the stockholder action to be effective.  To permit otherwise in all circumstances would burden Delaware corporations with the requirement of "monitoring" their computers and fax machines on a regular basis to determine whether sufficient consents have been delivered to take corporate action.  The statute provides that the board of directors may authorize electronic delivery of consents to the corporation by adopting a resolution that specifies the manner and circumstances under which electronic delivery to the corporation will be valid.

Although the amendments to Section 228 permit directors to expand the circumstances in which electronic consents will be valid, the board likely does not have discretion to impose restrictions on the right to act by electronic consent.  Section 228(a) specifically vests stockholders with the authority to act by written consent "unless otherwise provided in the certificate of incorporation."  8 Del. C. § 228(a).  Thus, the Delaware courts have held that in order to eliminate or place non-ministerial restrictions on the ability of the stockholders to act by written consent, a provision to that affect must be specifically set forth in the certificate of incorporation.[9]  New Section 228(d) permits stockholders to evidence their consents by telegram, cablegram or other electronic transmission.  In view of the existing case law holding that restrictions on stockholder power to act by consent must be set forth in the charter, the extent to which a board of directors may, by resolution or bylaw amendment, prohibit or impose non-ministerial restrictions on electronic consents is questionable.  Arguably, any such restriction on the ability of stockholders to act by electronic consent would be effective only if contained in the certificate of incorporation.

With respect to corporations whose charters do not prohibit or restrict stockholder action by consent, corporate counsel should be aware that existing bylaw provisions that effectively track the language of Section 228 prior to its amendment may no longer be valid to the extent they would preclude or restrict electronic consents, which are now expressly authorized by statute.  In order to assure that bylaw provisions remain valid and up to date, corporations should consider adding language similar to the following to any existing provision regarding stockholder action by written consent:

A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of these Bylaws, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the Corporation can determine (A) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (B) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission.  Any consent by means of telegram, cablegram or electronic transmission shall be deemed to have been signed on the date on which it was transmitted.  No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded.  Delivery made to a Corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested.  Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the Corporation or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent, and in the manner provided by resolution of the Board of Directors of the Corporation.

At the present time, the number of Delaware corporations that will choose to utilize modern communication technologies as now permitted by the DGCL, and the manner and extent to which those technologies will be implemented, remains uncertain.  As with any significant statutory change, a certain amount of initial trepidation is to be expected.  Much is still unknown with respect to the practical impact the technology amendments will have on the nature of corporate governance.  Nonetheless, some general observations at this point in time seem apt.

Cost Savings

The immediately apparent advantage to any Delaware corporation choosing to implement the technology amendments is the potential cost savings associated with notice by e-mail as opposed to printed and mailed notice of stockholder meetings.  Indeed, that reason alone may be determinative for many corporations when deciding whether to implement electronic notice procedures.  Given the large number of outstanding shares in many public corporations, the cost savings could be substantial.  The cost savings potentially associated with a remote or "locationless" meeting could be equally substantial, at least when the technology to conduct such meetings becomes relatively affordable.  A tremendous amount is spent annually securing meeting facilities and employing the necessary personnel to accommodate meeting attendees.  An entirely cyberspace meeting would eliminate many of those costs, although cyberspace meetings no doubt will entail costs of their own.

While corporate costs will surely decrease with the use of electronic notice and remote meetings of stockholders, practitioners need to be aware that such cost-savings will not necessarily inure to the corporation alone.  Insurgents seeking to conduct a proxy or consent solicitation may no longer be hampered by the same economic barriers that existed in the past.  Although the ability to solicit proxies electronically has existed for some time, the recent amendments to the DGCL and continually advancing technology will no doubt further lessen economic barriers to hostile proxy and consent solicitations.  As advancing technology makes such solicitations less and less costly, the "flood gates" could be opened to any disgruntled stockholder with a PC.

Increased Stockholder Participation

In addition to the potential cost savings associated with notice by e-mail and cyberspace meetings, meetings by remote communication should increase stockholder participation and ultimately improve opportunities for meaningful exercise of the stockholder franchise.  While many stockholders will undoubtedly continue to grant their proxy to management or special interest groups or even do nothing in response to the annual proxy statement, other stockholders undoubtedly will choose to attend and participate in meetings by remote communication from their homes or offices.  The ability to attend and vote at a meeting by remote communication may give stockholders the advantage of voting on a more informed basis, especially if substantial discussion of a particular proposal ensues during the meeting.  The ability to attend meetings electronically may provide greater opportunity to consider all sides of a proposal.[10]

For management, the autonomy granted to stockholders through electronic participation and voting may come at a price.  Stockholder meetings may become less predictable as management will not necessarily have a sufficient number of proxies in hand prior to the meeting from which to determine the likelihood that a given proposal will be approved.  Even where the corporation has received a requisite number of proxies before the meeting, stockholders who otherwise might not have attended a meeting in person may now elect to participate electronically and would have the ability to revoke their proxies during the meeting.  Moreover, the verification procedures for ensuring electronic attendance and participation only by stockholders and proxyholders may prove to be cumbersome.

A less frequent, but certainly possible, problem is that of the disgruntled stockholder who seeks to disrupt a meeting.  This has proved a nettlesome problem when disruptive stockholders attend meetings in person.  One can only imagine the possible means a technologically adept, disgruntled stockholder may find to interfere with a meeting held entirely or in part by remote communication.  For companies seeking to bring their stockholder meetings into the electronic age, arranging proper security for such a meeting now will entail much more than hiring a few security guards.

Small Companies and Subsidiaries May Find the Ability to Use Modern Communication Technologies More Advantageous

The companies that will find the most utility in the new amendments initially may be small, closely held corporations that are nonetheless at the cutting edge of technology, especially those with directors and stockholders scattered across the country and not centered in one geographical location.  Since small companies may have a more flexible and open ended agenda for stockholders’ meetings, attendance electronically may be much more meaningful than by proxy.  Similarly, subsidiaries of public corporations and joint ventures among corporations may find the ability to utilize advanced communication technologies particularly advantageous.  Director action by electronic consent may be more easily arranged than a telephonic meeting or distribution of written forms of consent.  Action by consent of the board of directors could be achieved simply by sending an e-mail to all of the members of the board of directors setting forth the proposed action to be taken with a request that each director reply affirmatively to the e-mail if the director approves of the action to be taken.  Once the affirmative replies of all of the directors have been received by the sender, then the sender need only print (or electronically store) the responses and insert them with the minutes of the proceedings of the board.

Conclusion

While the technology amendments empower a corporation, and in particular its board of directors, to utilize modern technology in conducting corporate affairs, directors should carefully weigh the advantages such amendments offer before implementing policies allowing utilization of modern communication technologies to the full extent now permitted by the DGCL.  Directors should carefully consider which communications technologies would be appropriate for the particular corporation and should weigh the costs and benefits before authorizing wholesale utilization of a particular technology or procedure.

Notes:

[1] Michael D. Goldman and Michael A. Pittenger are partners and Janine M. Salomone is an associate, at Potter Anderson & Corroon LLP in Wilmington, Delaware.  The views expressed herein are those of the authors and may not be representative of the views of the firm or its clients.

[2] Similarly, many of the bylaw amendments proposed in Part I reflect the language and terms of the relevant provisions of the DGCL as in effect immediately after the amendments.  Companies whose bylaws are of a style tending to track the relevant statutory provisions should periodically evaluate their bylaws to ensure they are able to take full advantage of the most recent statutory provisions.  An alternative style of bylaws utilizes broad authorizing language and, for example, permits a variety of actions “to the full extent permitted by applicable law.”  While that style of bylaws offers the advantage of being instantly responsive to changes in applicable law, it carries with it the disadvantage of not offering much meaningful guidance to corporate officers who must consult those bylaws on a regular basis and who are not fully versed in the nuances of the governing statutes

[3] Aside from the amendments governing use of modern communication technologies, the DGCL was amended to empower a Delaware corporation to renounce in advance an interest or expectancy in a specific corporate opportunity or class of opportunities.  This amendment, incorporated as a new Subsection 122(17), is intended to eliminate the uncertainty surrounding the renunciation of corporate opportunities raised in Siegman v. Tri-Star Pictures, Inc., Del. Ch., C.A. No. 9477 (May 5, 1989, revised May 30, 1989), where the Court of Chancery questioned the validity of a charter provision arguably limiting liability for breach of the directors’ duty of loyalty.  A full discussion of the amendment to Section 122 is beyond the scope of this article.

[4]  At the onset, we note that the provisions identified herein are being offered to provide corporate counsel with a general framework for reviewing and amending its bylaws.  Additional provisions may need to be amended to maintain internal consistency within the governing documents.

[5]  Electronic transmission is defined under new Section 232(c) as, "any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such recipient through an automated process."

[6]  It is important to note that the decision to permit stockholder attendance and participation by remote communication is entirely within the discretion of the board of directors.  Even if the holders of a majority in interest of a corporation’s stock are proponents of stockholder meetings involving attendance by remote communication, they could not compel the corporation to permit attendance at its annual meeting by such means through a bylaw amendment or otherwise.  The only recourse would be to replace the board.

[7]  Any Delaware corporation with publicly traded stock that determines to provide notice to its stockholders by electronic means should be mindful of the recent SEC Interpretative releases and Regulations permitting electronic delivery of proxy materials.  See Securities Act Release No. 7233 (October 6, 1995); Securities Act Release No.’s 7288 and 7289 (May 9, 1996); Securities Act Release No. 7856 (April 25, 2000).

[8] A stockholder’s consent to receiving notice by a particular form of electronic transmission is deemed revoked if two consecutive notices are attempted to be delivered and later returned or rejected as undeliverable and if such inability becomes known to any person responsible for the giving of notice.  But if a corporation inadvertently fails to treat such inability to deliver as a revocation of consent to deliver notice, it will not invalidate any meeting or other action.

[9] Plaza Securities Co. v. Datapoint Corp., C. A. No. 7932 (Del. Ch. Mar. 5, 1985), aff’d, 496 A.2d 1031 (Del. 1985).

[10] Certain institutional investors have expressed the view that cyberspace meetings will not increase stockholder participation, but rather will eradicate the one remaining forum for airing stockholder grievances.  See Lawerence A. Hamermesh, "Face-to-Space: Delaware Allows Annual Meetings to Take Place on the Internet Raising Questions about Shareholder Input," The Delaware Law Weekly (December 26, 2000).  Traditionally, stockholder meetings have been the only time of the year that shareholders are able to communicate face-to-face with the board of directors, management, and other stockholders of the corporation.  While the value of stockholder meetings has been maligned over the past few years, shareholder activists who own stock in corporations that hold Internet only meetings may find themselves without a stage.