Last year, we reviewed proxy statements filed by companies in the Silicon Valley 150[1] (SV150) to see whether they included an officer exculpation proposal[2] in their proxy statements for stockholder meetings held from August 1, 2022, through July 31, 2023 (“Year One”). As reflected in our previous post and Client Alert, during Year One, only nine SV150 companies included an officer exculpation proposal in their proxy statements, of which seven passed and two failed.
Although small in number, the success of most of the officer exculpation proposals in the SV150 was reflective of a broader trend among public companies that included such a proposal in their proxy statements during Year One. In addition, following Year One, in January 2024, the Delaware Supreme Court issued a decision affirming that the DGCL does not require companies with multiple classes of common stock to obtain separate class votes to amend their certificates of incorporation to provide for officer exculpation. For more information on the Delaware Supreme Court decision, please see our previous Client Alert.
Given these developments, we undertook a review of proxy statements filed by companies in the SV150 for stockholder meetings held from August 1, 2023, through July 31, 2024 (“Year Two”). Among other things, we wanted to see whether there was an increase in officer exculpation proposals and whether more dual- or multi-class companies voted on such a proposal. Only one of the nine SV150 companies that voted on an officer exculpation proposal in Year One had dual- or multi-class common stock.
The detailed results of our review of Year Two are set forth below. In short, there was a notable increase in officer exculpation proposals voted on among SV150 companies in Year Two, both generally and with respect to companies with dual- or multi-class common stock.
In reviewing the SV150 companies for Year Two, we found the following:
- six companies were incorporated in jurisdictions other than Delaware;
- five companies had adopted officer exculpation in Year One,[3]
- two companies had adopted officer exculpation in connection with their recent initial public offerings (IPOs), and
- one company had adopted officer exculpation in connection with a recent spin-off.
Accordingly, for purposes of our review of proxy statements filed for stockholder meetings held during Year Two, our data set was limited to 136 SV150 companies.
Vote Results
Of the 136 SV150 companies reviewed for Year Two, 29 companies, or approximately 21 percent, included an officer exculpation proposal in their proxy statement in Year Two.[4] Consistent with Year One, the voting results are positive. Of the 29 proposals voted on in Year Two, 26 passed, reflecting a nearly 90 percent passage rate, and only three failed.
Dual- / Multi-Class Common Stock or Single-Class Common Stock
Of the 29 companies that included an officer exculpation proposal in their proxy statements for Year Two, 14 have dual- or multi-class common stock, 14 have single-class common stock, and one has single-class common stock and outstanding preferred stock. For comparison, only one of the nine SV150 companies that voted on an officer exculpation proposal in Year One had dual- or multi-class common stock, and the remaining eight companies had single-class common stock.[5]
Voting Standard
Of the 29 officer exculpation proposals voted on in Year Two, 22 required the affirmative vote of a majority of the voting power of the outstanding stock entitled to vote on the proposal (the default voting requirement under the DGCL for this charter amendment), and seven proposals required the affirmative vote of a supermajority (generally, 66 2/3 percent) of the voting power of the outstanding stock entitled to vote on the proposal. Of the 26 proposals that passed, four required a supermajority vote. All three of the officer exculpation proposals that failed required a supermajority vote.
The success of the early adopters from Year One and the decision rendered by the Delaware Supreme Court regarding dual- or multi-class companies (discussed above) are likely to have driven, in part, the increase in the number of proposals in Year Two, in particular the increase in dual- or multi-class common stock companies submitting these proposals to a stockholder vote.
As of the date of this post, 34 of the 143 Delaware-incorporated SV150 companies, or approximately 24 percent, have adopted officer exculpation, with two more proposals pending.[6] Two of these 34 companies adopted amended and restated certificates of incorporation with an officer exculpation provision in connection with their recent IPOs. With the continued success of the officer exculpation proposals and with IPO activity increasing, we may well see a greater overall percentage of SV150 companies with officer exculpation amendments in year three and beyond.
[1] The Lonergan Silicon Valley 150 ranks the top 150 public companies with headquarters in Silicon Valley by annual sales. For more information on the methodology used to prepare the Lonergan Silicon Valley 150, please visit https://lonerganpartners.com/2024-lonergan-silicon-valley-150-list. Last year, we reviewed the 2023 Silicon Valley 150 companies. This year, we reviewed the 2024 Silicon Valley 150 companies. Of the 150 companies, 139 companies remained on the list and only 11 companies changed from 2023 to 2024.
[2] Section 102(b)(7) of the Delaware General Corporation Law (DGCL) was amended, effective August 1, 2022, to permit a Delaware corporation to include in its charter a provision eliminating or limiting the personal liability of certain officers for direct claims for breaches of their fiduciary duty of care. While this amendment extends to a corporation’s officers certain protections long afforded to directors, there are limitations, some of which are discussed in our previous post.
[3] As discussed above, in Year One, seven of the SV150 companies adopted officer exculpation. However, one of those companies was acquired in 2023 and one of those companies moved its headquarters to Nevada in 2023. Accordingly, only five of the seven SV150 companies with officer exculpation proposals that passed in Year One remained on the SV150 list for Year Two.
[4] An additional two SV150 companies with annual meetings to be held after August 1, 2024, have filed proxy statements with an officer exculpation proposal. Those results are not reflected in this post and remain pending as of the date of the post.
[5] The three failed proposals in Year Two and the two failed proposals in Year One were voted on at companies with single-class common stock.
[6] As discussed in the post, five of the seven SV150 companies that voted on and passed the officer exculpation proposal in Year One remain in the SV150, two SV150 companies adopted officer exculpation in connection with their IPO, and one SV150 company adopted officer exculpation in connection with a spin-off.
