Founders and controlling stockholders often seek to retain
control over their companies even after taking them public,
typically via high-vote share classes or, as was at issue in this
case, via stockholder agreements granting the pre-IPO owners broad
governance rights.
In West Palm Beach Firefighters' Pension Fund v. Moelis
& Company, the Delaware Court of Chancery recently held
that a "new wave" stockholder agreement between Moelis
& Company (the "Company") and its founder, CEO, and
board chairman, Ken Moelis was invalid under Section 141(a) of the
Delaware General Corporation Law (the "DGCL") because it
contained "pre-approval rights" over a number of
corporate actions, required the board to recommend individuals
designated by Moelis for a majority of directorships and fill
committee positions and board vacancies with Moelis designees,
impermissibly constraining the board's ability to manage the
business and affairs of the company—powers the statute does
not allow the board to delegate via contract.
Moelis is a strong reminder that the foundation of the
corporate form in Delaware is the independent authority of a board
of directors, elected by stockholders and entrusted to manage the
business and affairs of the corporation as fiduciaries. Delaware
will not permit this foundation to be eroded through contractual
arrangements with stockholders.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
