Forum selection bylaws: if you want them, what's next?

In the first part of this two-part series on forum selection bylaws, I discussed the recent decision by the Delaware Chancery Court that upheld a board's unilateral ability to impose choice of forum provisions in a corporation's bylaws. In that blog post I also discussed some pros and cons of adopting such a provision. In this blog post I will expand on the pros and cons of forum selection bylaws. Then I'll provide some additional thoughts for consideration should your board want to move forward with adopting forum selection provisions.

Should you want to adopt a forum selection provision? Maybe, maybe not. 
On the "yes" side, there are some well-known reasons. In my last post I discussed the prevalence of expensive multi-jurisdictional litigation, the inefficiency of the same question being presented for litigation in more than one court, and the well-known expertise of the Delaware court. Regarding this last category, I note that litigation predictability enhances things like transactional deal certainty. For this reason, knowing that challenges will be decided by a sophisticated and predictable court augments the ability of business people—including the board of directors—to conduct a corporation's affairs in a way that maximizes shareholder value.

So why would a corporation refrain from adopting forum selection provisions? First, it's worth noting that while some corporations face a lot of litigation, not all do. For many corporations the type of litigation that would fall within the parameters of a forum selection provision is infrequent or immaterial. In addition, while multi-jurisdictional litigation certainly exists, much of it is often stayed pending resolution in just one court.

Also, consider that when it comes to corporate governance issues, many companies would rather not be on the leading edge, much less the bleeding edge, of innovation. A wait-and-see approach, while not a bold one, might be a fruitful strategy. For example, it is not clear that all other 49 states will respect a company's attempt to make Delaware (or any other state) the exclusive forum for certain shareholder disputes just because Delaware courts say this is proper. Other states may feel that preserving the right of their citizens to bring suit in their own state courts trumps all other considerations.

Finally—and this is a delicate point—it's not clear that a company will always want to litigate in Delaware. For example, assume a company enjoys a revered reputation as a good corporate citizen in the jurisdiction where it is headquartered. This company may feel its prospects are better in a local court compared to one in Delaware, where that same company might be relatively unknown. Consider also that Delaware courts are known for being business-friendly when all the niceties of corporate governance are observed. On the other hand, these same courts may be substantially less friendly to companies that may have tried, but in the end failed, to adhere strictly to Delaware's view of good corporate governance. Not all companies are equally far down the road when it comes to their evolution in corporate governance matters. Less mature companies may believe they will be viewed more sympathetically and given more "credit" for trying to do the right thing if they litigate outside of Delaware.

You've decided you want to adopt a choice of forum provision—what now?
Certainly your board can insert into your company's bylaws a choice of forum provision (I am assuming that your bylaws allow the board to change them unilaterally. Most do, and shareholders normally have the ability to overturn any changes they do not like). But is unilateral action the best way to go?

First, clearly no responsible board of directors would take this sort of action without first studying the issue carefully by: obtaining advice of counsel (it's a good idea to speak both with your corporate attorney and also a seasoned litigator); considering all the pros and cons; and carefully considering what's in the best interests of their shareholders. Responsible boards will also document their process. When directors proceed in this manner, they can take the same steps that the boards of Chevron and FedEx were vindicated in taking, i.e. unilaterally amend their bylaws.

One concern, however, is whether amending bylaws in this way will cause proxy solicitation services like ISS and Glass Lewis to recommend a "no" vote for members of a board's governance committee, if not the whole board. This is absolutely not a reason to avoid taking the action per se ... and we all understand that a "no" recommendation is highly disruptive for a company. In such a situation, the company is now on the defensive and has to spend company—which is to say shareholder—resources combating the negative recommendation.

Here's an alternative worth considering: as part of a company's normal annual proxy process, a company could reach out to its major shareholders to get a sense of their view of forum selection provisions. If the views seem positive, in the next annual meeting cycle the board could put the question to its shareholders on an advisory basis. If shareholders vote no, the board should stop there. However, if the shareholders vote yes, then the directors should feel comfortable inserting forum selection provisions in the bylaws. They would be doing so in response to the expressed views of their shareholders. This process should alleviate any concerns of being drawn into a distracting, time-consuming and unnecessary brouhaha with the proxy solicitation services.

The views expressed in this blog are solely those of the author.  This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email me at



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