Jones Apparel: Eliminating Board Discretion by Charter Provision
The General Corporation Law of the State of Delaware (the "General Corporation Law") empowers a corporation to create, define, limit or regulate, by charter provision, certain powers of its board of directors or stockholders so long as the charter provision does not violate the laws of the State of Delaware. Practitioners, however, generally have been cautious when advising corporations with respect to the adoption of charter provisions limiting the power granted to the board of directors or the stockholders of a corporation by a provision of the General Corporation Law. In that context, practitioners typically have drawn a bright-line and have recommended that such powers only be limited if the relevant provision of the General Corporation Law contains express language contemplating such a limitation. The recent decision by the Delaware Court of Chancery in Jones Apparel Group, Inc. v. Maxwell Shoe Co., Inc. rejects a bright-line approach and concludes that discretion granted to directors by a provision of the General Corporation Law may be completely eliminated even if the relevant provision of the General Corporation Law does not contain the express language. The Court of Chancery's decision arguably increases flexibility by allowing enhanced private ordering by charter provision, but also causes some uncertainty with respect to which provisions of the General Corporation Law may be altered by charter provision without violating Delaware public policy.