Removal of directors of a Delaware corporation.

• Author: Rennie, Sheldon K.
• Position: BOARD PRACTICES

The authority to "fire" a director of a Delaware corporation is possessed solely by shareholders of the corporation. Unlike some other states, directors of a Delaware corporation can only be removed by the decision of the majority of shareholders entitled to vote. In other words, a director cannot be removed by his or her fellow directors. Indeed, Delaware General Corporation Law (DGCL) section 141(k) makes it clear that corporate directors may be removed with or without cause by a vote of the majority of the shareholders.

Delaware case law: Kurtz v. Holbrook

While the inability of a director to remove another director from his or her position has been well established in Delaware, the rule was reiterated by the Delaware Court of Chancery in the case of Kurtz v. Holbrook, C.A. No. 5019-VCL (Del. Ch. Feb. 9, 2010). In Kurtz, the courtfaced the issue of first impression of whether a proposed bylaw amendment that purported to reduce the size of the board to three, in order to remove sitting directors between annual meetings, violated DGCL.

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The court struck down the bylaw as a violation of sections 141 (b) and (k) of the DGCL which require, respectively, that (i) a director shall hold office until the director's successor is elected and qualified or until the director resigns or is removed, and (ii) any such removal shall be effected by the shareholders of that corporation.

Specifically, addressing the term of a sitting director, section 141(b) of the DGCL provides in relevant part, "Each director shall hold office until such director's successor is elected and qualified or until such director's earlier resignation or removal." With respect to the removal of a director, section 141(k) provides in pertinent part, "Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors." The language of section 141(k) makes it clear that only shareholders, and not directors, can remove a director.

The Court of Chancery in Kurtz struck down the proposed bylaw that attempted to reduce the size of the board because of its potential for directors to remove other directors. DGCL section 109(a) allows directors to amend or repeal bylaws, and if a bylaw amendment reducing the size of a board could eliminate sitting directors, then directors suddenly would have the power to remove other directors by simply reducing the size of...