Boards Slow to Adopt New Legal Protections for CEOs-But That Could Change

Megan Gates’ commentary was included in an Agenda article exploring officer exculpation and its potential to become a recruitment and retention issue for companies incorporated in Delaware.

While officer exculpation, or measures to insulate executive officers from litigation costs, has been gradually adopted by corporations in the two years since Delaware began permitting the practice, Megan tells Agenda that the practice is expected to become "the norm" for Delaware public companies. In addition to improving risk profiles, more companies could be compelled to adopt officer exculpation in order to remain competitive with recruitment of C-suite positions, she said.

"I think that any company that's going public for the first time will probably have this already included in its charter at the time it goes public," she said. Meanwhile, other firms looking to hire in the C-suite could begin to feel competitive pressure. "I think that companies do view this as at least possibly being helpful to have and to be able to say that they do have the additional protection provided by the statute," Megan said. “It also could begin working in the other direction,” she added.

"I think making existing C-suite employees feel more comfortable as a retention measure is also a factor," Megan said. "Just giving the existing employees that added level of security and protection, from a retention standpoint, is just a good thing."

Even with all this in mind, there will still be boards that are unsure about proposing officer exculpation because "they just don't want to ruffle their shareholders' feathers," she said. "They just sort of want to keep their annual meetings really cut-and-dried, and only cover things that are absolutely required, like director elections, and not ask the shareholders for anything beyond the typical," she said.