CA, Inc. v. AFSCME Employees Pension Plan

953 A.2d 227 (2008)

Quick Summary

CA, Inc. (plaintiff) and AFSCME Employees Pension Plan (defendant) contested a proposed bylaw concerning reimbursement for shareholder proxy expenses. The legal question pertained to whether this proposal was appropriate for shareholder action and aligned with Delaware law.

The Supreme Court of Delaware held that while shareholders could propose procedural bylaws related to director elections, these bylaws could not constrain directors’ fiduciary duties or mandate corporate expenditure decisions. As such, while the proposal was permissible in theory, its enforcement could conflict with Delaware law if it unduly restricted director discretion.

Facts of the Case

CA, Inc. (plaintiff), a Delaware corporation, was governed by a board consisting of twelve directors re-elected annually. The AFSCME Employees Pension Plan (defendant) owned shares in CA, Inc. and proposed a bylaw amendment that would obligate the corporation to reimburse shareholders for expenses incurred during the election of directors if certain conditions were met.

This proposal was not addressed in the existing bylaws or certificate of incorporation, which generally vested management and corporate affairs in the board of directors’ discretion.

CA, Inc. sought to exclude this proposal from its proxy materials, causing the Securities and Exchange Commission (SEC) to seek guidance from the Delaware Supreme Court on whether the proposed bylaw was appropriate for shareholder action and consistent with Delaware law.

Procedural Posture and History

  1. AFSCME proposed a bylaw amendment to CA, Inc.’s proxy materials for an upcoming stockholder meeting.
  2. CA, Inc. notified the SEC of its intent to exclude the proposal and requested a no-action letter.
  3. The SEC certified two questions to the Delaware Supreme Court regarding the legality and propriety of the proposed bylaw.
  4. The Delaware Supreme Court accepted the certification and expedited the case due to the timing of CA’s proxy materials filing.

I.R.A.C. Format


Whether the proposed bylaw mandating reimbursement of shareholder proxy expenses in certain conditions is a proper subject for shareholder action and consistent with Delaware law.

Rule of Law

A bylaw amendment must not be inconsistent with law or the corporation’s certificate of incorporation, and it may regulate procedural aspects of board actions but not mandate substantive business decisions.

Reasoning and Analysis

The court recognized that shareholders and directors have concurrent powers to adopt bylaws under Delaware law. However, it emphasized that shareholders’ power is not coextensive with that of the board due to the board’s managerial prerogatives. The court reasoned that bylaws traditionally regulate the process by which the board conducts its business, not substantive decisions.

The proposed bylaw, although phrased as a substantive mandate, essentially regulated the process for electing directors, a protected interest of shareholders. The court also considered whether the bylaw would cause CA to violate any Delaware law.

It concluded that while the bylaw did not facially violate any DGCL provision or CA’s Certificate of Incorporation, it could violate common law principles if it precluded directors from fulfilling their fiduciary duties under certain circumstances. The court found that, as written, the bylaw could improperly bind directors to reimburse expenses even when fiduciary principles would dictate otherwise.


The Supreme Court of Delaware affirmed that the proposed bylaw was a proper subject for shareholder action but would cause CA to violate Delaware law if it restricted directors’ fiduciary duties. Consequently, while shareholders could propose such a bylaw, it could not be enforced in a manner that limited directors’ discretion mandated by their fiduciary obligations.

Key Takeaways

  1. Shareholders may propose bylaws that regulate procedural aspects of board actions but cannot dictate substantive business decisions.
  2. A proposed bylaw must be consistent with both statutory law and common law principles concerning directors’ fiduciary duties.
  3. If a bylaw mandates actions that could conflict with directors’ fiduciary duties under certain circumstances, it may be deemed unenforceable.

Relevant FAQs of this case

What legal principles govern the creation and enforcement of corporate bylaws?

The creation and enforcement of corporate bylaws are guided by statutory law, typically dictated by the state of incorporation, and common law principles that uphold the fiduciary duties of directors. Bylaws must align with both the corporation’s certificate of incorporation and overarching legal standards to be enforceable.

  • For example: A company incorporated in State X must adhere to State X’s corporate statutes when drafting its bylaws, including rules for shareholder meetings, board structure, and director elections. Bylaws that conflict with state law or common law duties, such as those imposing unreasonable restrictions on a board’s decision-making power, would not be enforceable.

How do a board's fiduciary duties influence its ability to reject shareholder proposals?

A board is bound by its fiduciary duties to act in the best interest of the corporation. When confronted with shareholder proposals, these duties require the board to consider whether accepting or rejecting the proposal preserves the company’s welfare. If rejecting a proposal better serves corporate interests, this may be justified as fulfilling their fiduciary responsibilities.

  • For example: A shareholder proposal suggesting that the company invest heavily in speculative assets would obligate the board to assess potential risks. If deemed excessively risky, the board has the fiduciary authority to veto this proposal to protect the company’s and shareholders’ financial interests.

In what ways can shareholder actions influence corporate governance, especially concerning bylaw amendments?

Shareholder actions can affect corporate governance significantly through bylaw amendments that regulate procedural matters such as director elections and meeting protocols. While shareholders do not have direct managerial power, they can shape governance frameworks within legal constraints.

  • For example: Shareholders might pass a bylaw stipulating advanced notice requirements for nominations to the board. Such provisions influence the election process without encroaching on directors’ substantive management decisions.


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