Advance Notice Bylaws: 'If It Ain't Broke, Don't Fix It!'

Two recent decisions have placed Delaware corporations on notice that they must carefully examine their advance notice bylaws, lest they find themselves subject to the default rule under Delaware law which allows stockholders, without warning, to nominate director candidates and raise other proposals at an annual meeting. In Jana Master Fund, Ltd v. CNET Networks, Inc., C.A. No. 3447-CC (Del. Ch. Mar. 13, 2008), aff'd No. 140, 2008 (Del. May 13, 2008), the Court of Chancery declared CNET's advance notice bylaw inapplicable to Jana's stockholder proposals submitted as part of its effort to take control of a majority of CNET's board of directors. In Levitt Corp. v. Office Depot, Inc., C.A. No. 3622-VCN (Del. Ch. Apr. 14, 2008), the Court of Chancery upheld Levitt's right to nominate directors without advance notice, even though Office Depot's bylaws regulate the conduct of business at stockholders meetings by, among other things, requiring advance notice of stockholder proposals. Despite this victory, Levitt has dropped its proxy contest.

There is little doubt that both CNET and Office Depot believed that their bylaws were effective to require advance notice of stockholder nominations, and they must have been more than a little surprised by these rulings. Despite appearances to the contrary, however, these rulings do not herald the demise of advance notice bylaws as an effective means of preventing surprises at stockholders meetings of Delaware corporations. The lesson to be learned is a fairly simple one: Corporations and their advisers should resist the temptation to tinker with traditional advance notice bylaw provisions in an effort to 'improve' them.