Corporate Law's Challenge to Keep Pace with Technology
Corporate boards seeking to improve investor relations have found an ally in the Internet. Corporations are taking advantage of widespread access to and use of the Internet, its improved security, and the tremendous cost-savings of Internet publishing by offering their investors opportunities to receive documents electronically, designate proxy voting instructions online, and even view annual stockholder meetings online. Each year, more and more corporations are offering their stockholders the convenience of voting telephonically or electronically. In 1998, just under 200 companies offered telephone voting. In 1999, that number more than doubled to over 500. ADP-ICS offered beneficial stockholders of 312 companies the ability to vote their proxies via the Internet in 1998; that number sky-rocketed to 14,000 companies in 1999. The number of beneficial holders taking advantage of Internet voting soared from 637,959 in 1998 to over 2.3 million in 1999.[1]
As the number of people using the Internet continues to grow (current usage is estimated by the Computer Industry Almanac to be 327 million people),[2] many jurisdictions, including Delaware, are reviewing their corporation statutes and are considering appropriate changes that would accommodate the world's new business practices. For example, the drafters of the Model Business Corporation Act (the "Model Act") already have amended the Model Act's provisions to make it more "electronically friendly" and Delaware is considering similar changes to its corporation law. These changes represent the opening salvo in what will likely be a continuing effort to update the corporate law in response to changing technology.
This article discusses the issues and potential pitfalls presented by the use of emerging technology by corporations and their stockholders under both the Model act and the DGCL.[3] While the law with respect to the use of the Internet in the corporate governance arena is still emerging, both the DGCL and the Model Act provide certain tools to corporate counsel for the use of computer based technology. The use of such tools has the potential of saving companies substantial expenses and to expedite corporate action. As we move forward, the challenge to the drafters of the DGCL and the Model Act will be to ensure that their respective statutes fully utilize newly emerging technology. This article intends to provide a checklist to corporate counsel seeking to utilize the Internet by walking the reader through the provisions of the Model Act and the DGCL as they currently exist relating to (i) providing notice to stockholders of an annual meeting, (ii) voting agreements, (iii) proxies, (iv) consents, (v) annual meetings, (vi) board meetings, and (vii) the maintenance of corporate records.