Over the next few months, boards and board committees will be making many decisions and taking many actions. It seems like a good time to remind folks about the necessity of following corporate formalities. In a books and record request case decided by the Delaware Supreme Court earlier this year, KT4 Partners LLC v. Palantir Technologies Inc., 203 A.3d 738 (2019), the court ordered the company to turn over emails and other electronic communications relating certain disputed amendments of its Investors’ Rights Agreement. The general rule in Delaware (and most other states) is that a shareholder/plaintiff that makes a credible claim of wrongdoing against a company can review traditional board-level materials, such as resolutions and minutes, but not emails. However, as the court held:

Ultimately, if a company observes traditional formalities, such as documenting its actions through board minutes, resolutions, and official letters, it will likely be able to satisfy a § 220 petitioner’s needs solely by producing those books and records. But if a company instead decides to conduct formal corporate business largely through informal electronic communications, it cannot use its own choice of medium to keep shareholders in the dark about the substantive information to which § 220 entitles them.

This case had nothing to do with executive compensation, but it always shocks me when a corporation fails to follow even the most rudimentary corporate formalities. However, if you know of one that falls into that category, you should urge it to increase its litigation budget.