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Can Shareholders Just Agree Not to Sue Directors and Officers?

Management Liability

Walker Newell

Dec 03, 2025

7 minutes

In this week’s edition of the D&O Notebook, my colleague Walker Newell explores a recent paper by law professors suggesting that Delaware corporations and shareholders can enter into contracts to get rid of certain litigation against directors, officers, and/or the company. It’s an interesting thought experiment as the corporate ecosystem considers the optimal legal balance in the years ahead. —Priya Huskins

In recent years, you may have seen an apocryphal quote that says something like: “There are decades when nothing happens, and years when decades happen.”

For the legal frameworks that matter to D&O litigation risk—federal securities laws, state corporate codes, and judicial decisions—2025 contained at least a decade’s worth of developments.

This year:

Several high-profile publicly traded companies reincorporated away from Delaware and into Nevada, Texas, and other states.
The Delaware legislature quickly passed new laws changing key features of the state’s corporate legal framework (including the standards for controller transactions and shareholder inspection rights).
Texas established new business courts, started a new stock exchange, and passed new D&O-friendly laws (including the ability to adopt a 3% threshold for shareholder derivative litigation).
Nevada proposed a new business court structure and actively courted companies by emphasizing its longstanding D&O-friendly fiduciary duty laws.
The SEC articulated impactful new policy positions, including on mandatory securities arbitration and shareholder proposals.

Watch the webinar: Leaving Delaware? Corporate Governance and D&O Liability in Texas and Nevada

No one knows what 2026 will hold. But it is a safe bet that there will continue to be a lively debate over the appropriate balance between the rights of common shareholders (on one hand) and officers, directors, and controllers (on the other). And it seems reasonable to assume that the conversation will continue to focus in the near term on restricting—not expanding—shareholders’ ability to sue directors and officers.

This ongoing conversation is focused, of course, on the terms of the statutes and judicial doctrines governing shareholder litigation.

But what if companies could contract around these legal frameworks and enter into private agreements with shareholders to define board and officer duties and limit litigation risk in unique ways? For example, what if shareholders could promise not to sue officers and directors for breaches of the duty of loyalty?

Contracting Out of the Duty of Loyalty?

As we have explained to our readers in the past, the Delaware General Corporation Law (DGCL) allows companies to exculpate officers and directors in a certificate of incorporation for breaches of the duty of care—but not for the duty of loyalty.

Simple, right? Hold onto your hat.

In a recent article titled “Should Corporate Law Go Private?” Professors Eric Talley and Dorothy Lund of Columbia Law School suggest that a stockholder agreement can be used to contract around this and other seemingly mandatory legal requirements.

How would this work? The theory hinges on Section 122(18) of the DGCL, enacted in 2024 in response to the Delaware Chancery Court’s Moelis decision, which invalidated certain features of a stockholder agreement giving a controlling shareholder a variety of rights.

Section 122(18) gives corporations expanded authority to enter into agreements with directors and stockholders “provided that no provision of such contract shall be enforceable against the corporation to the extent such contract provision is contrary to the certificate of incorporation or would be contrary to the laws of this State . . . if included in the certificate of incorporation.” The law allows stockholders to agree to “take, or refrain from taking, actions specified in the contract.”

Professors Talley and Lund propose that stockholders could agree under Section 122(18) to, among other things, “forbear from pursuing duty of loyalty claims against corporate fiduciaries.” This would be a big deal!

But wait: Wouldn’t such an agreement conflict with Delaware law, which doesn’t allow for exculpation of breaches of the duty of loyalty?

The professors don’t think this is a problem:

"[W]hile Section 122(18) does not permit a stockholder agreement to contravene express provisions of the charter, it is authorized to contract around implied terms, whether they are supplied by common law or existing Delaware statute. Critically, the agreement can bind signatories to forbear from asserting a variety of allegations, even those tethered to otherwise-unwaivable Delaware mandates. . . . While such a provision is not a formal 'waiver' of such duties, the forbearance obligation substantially defangs them by committing the parties (including the corporation) to abstain from pursuing legal action alleging their breach." (internal citations omitted)

Interesting. But assuming Delaware courts were to agree with this reading, how could a new corporate governance framework be established by stockholder agreement, particularly for companies with numerous shareholders?

According to the professors, a corporation and stockholders would enter into an agreement at an early stage, when the corporation has a small number of stockholders (e.g., venture capital firms). The agreement would “further mandate that subsequent purchasers and transferees of signatories’ shares must also agree to be bound by the agreement.”

The professors also suggest that while Delaware statute currently appears to prohibit companies from mandating in the corporate charter that shareholder disputes be arbitrated, a Section 122(18) stockholder agreement is not subject to this limitation.

They propose that disputes over the terms of stockholder agreements would be subject to mandatory arbitration. These proposed arbitrations would be handled by a new private company called the “Delaware Arbitration Board” (DAB). The DAB would be made up of “sophisticated judges, lawyers, businesspeople, and even academics,” and would be incentivized to generate arbitration business by giving individual arbitrators equity in the enterprise.

What are the benefits of this approach? The professors think the proposal would allow companies to insulate defined governance rules from additional future changes driven by political uncertainty. Competition between different arbitration companies and regimes would allow adjudication to be more nimble and responsive. And companies considering DExit could simply stay in Delaware and pick the rules they want through a stockholder agreement.

D&O Risk and Insurance in an Era of Corporate Legal Flux

“Should Corporate Law Go Private?” is an interesting contribution to the ongoing debate about DExit and the future of state corporate law.

Companies leaving Delaware have cited the litigiousness of the state’s shareholder plaintiff bar as a key rationale for seeking greener pastures in Nevada, Texas, and other jurisdictions. The central theory in Delaware cases against officers and directors is that they have breached their duty of loyalty. If there were a way to eliminate this risk, this would quiet many of the state’s critics.

The complexity of the proposed stockholder agreement process, however, begs the question: Why not simply amend the DGCL to, for example, mirror Nevada’s statutory regime, which forecloses duty of loyalty litigation unless particular bad facts (intentional misconduct, fraud, or a knowing violation of law) are present? Do most corporations really want to have the ability to create complex, bespoke rules of the road for fiduciary duty litigation, or do they just want more relaxed and broadly applicable standards? We’ll see.

As the conversation over the future of corporate law continues at high volume, the world of D&O insurance is watching and waiting. Tighter standards for fiduciary duty litigation in states like Nevada and Texas have the potential to impact the market for Side A D&O insurance, but it will likely take some time for material impacts to be felt by buyers. Companies may begin to test the waters next year by adopting mandatory arbitration agreements for corporate disputes. As inevitable legal challenges wind their way through the courts, the D&O insurance community will be watching with interest to see what comes next.

Disclaimer: The views expressed in this publication are solely those of the author; they do not necessarily reflect the views of AJG. Further, the information contained herein is offered as general industry guidance regarding current market risks, available coverages, and provisions of current federal and state laws and regulations. It is intended for informational and discussion purposes only. This publication is not intended to offer financial, tax, legal or client-specific insurance or risk management advice. No attorney-client or broker-client relationship is or may be created by your receipt or use of this material or the information contained herein. We are not obligated to provide updates on the information contained herein, and we shall have no liability to you arising out of this publication. Woodruff Sawyer, a Gallagher Company, CA Lic. #0329598