Fiduciary duties bind a board of directors to manage a corporation in the best interests of its shareholders at all times. The prominence of fiduciary duties under Delaware corporate law has led Delaware courts to invalidate corporate contracts that would prevent directors from exercising their fiduciary duties. The Delaware Supreme Court extended this doctrine to bylaws in CA, Inc. v. AFSCME Employees Pension Plan by invalidating a proposed bylaw that would mandate board action in violation of the board’s fiduciary duties.
At the same time, the CA, Inc. decision called into question the continued validity of mandatory advancement bylaws. It is well established in Delaware corporate law that corporations may advance the legal expenses of directors defending lawsuits related to their service on a corporate board. Moreover, Delaware courts have broadly upheld directors’ advancement rights where a corporation has adopted a bylaw mandating advancement to the full extent of Delaware law.
This Note examines the contours of fiduciary duty and advancement jurisprudence in Delaware corporate law. Next, it discusses the perceived impact the CA, Inc. decision has had on the enforceability of mandatory advancement bylaws. It then proposes that the Delaware General Assembly and stakeholders in Delaware corporations should independently take action to protect advancement rights following CA, Inc. Finally, this Note concludes that the CA, Inc. decision will not disturb mandatory advancement bylaws in light of the particular standard of review employed by the CA, Inc. court and cases relating to advancement bylaws.