On July 17, 2024, Delaware's Governor signed Bill SB 313 into law, adding a new dimension to the Delaware General Corporation Law (DGCL) with the introduction of Section 122(18). In short, Section 122(18) broadly validates the terms of agreements entered between a company and current or prospective stockholders that directly or effectively give the stockholder control over various business decisions traditionally left to the exclusive province of the board of directors.
This new provision has triggered a wave of debates and controversy within the corporate legal community. Section 122(18) seeks to override the Delaware Court of Chancery’s decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company (“Moelis”), which invalidated a stockholder agreement giving Ken Moelis, the founder and former controlling stockholder of Moelis & Co., a panoply of pre-approval and veto rights over most meaningful board decisions. The new statutory provision’s impact is likely to fall between the two polarized viewpoints articulated by the amendment’s corporate bar proponents, on the one hand, and investor advocates and governance law focused academics, on the other. Proponents of Section 122(18) suggest that the new law preserves Delaware's status as a leading jurisdiction in corporate law, while detractors argue that it undermines Delaware’s board-centric governance model.
