Governor Corzine Signs New Corporate Laws Intended to Make New Jersey More Business Friendly
On January 27, 2009, New Jersey Governor Jon S. Corzine signed into law two bills meant to update the state's business laws to make them more business friendly. While the new bills do not drastically change New Jersey's corporate laws, they eliminate some unnecessary restrictions which had previously hindered corporate management.
Assembly Bill No. 2883: Corporate bylaws may permit a New Jersey corporation to eliminate plurality voting for corporate directors.
This bill allows a New Jersey for-profit corporation's board of directors to eliminate plurality voting for director elections in its by-laws. In a plurality vote, the director that receives the most votes (even if not a majority of the votes) wins. Previously, a New Jersey corporation could only eliminate plurality voting for director elections if authorized under its certificate of incorporation. Thus, a shareholder vote was required. Under the new bill, the board of directors can adopt majority voting for the election of directors.
There has been a recent trend moving away from plurality voting for directors to majority voting. Proponents of majority voting contend that plurality voting fails to provide stockholders with an adequate mechanism to voice their dissatisfaction with existing management. They point out that in an uncontested election, a single vote for a director can be sufficient for a director's election. On the other hand, critics of majority voting contend that majority voting can cause failed elections in which the failure of any candidate to receive a majority of the vote leads to vacancies on the board. While the benefits of majority voting are up for debate, the passage of the bill shows an understanding that many corporations are re-examining their election methods for directors as well as a recognition that individual corporations, rather than the state, are best suited to decide the process by which they choose their management.
Assembly Bill No. 2881: Permits a corporate director to provide notice of resignation which shall be effective upon the occurrence of a certain event.
This legislation allows a director to provide notice of resignation to a New Jersey for-profit corporation that is only effective upon the occurrence of a certain event. It complements Assembly Bill No. 2883 in providing greater flexibility to corporations to adopt majority voting provisions, or other voting schemes, for the election of directors.
Generally, a director maintains his or her position on the board until a successor director is elected. Thus, if a corporation determines to have majority voting for directors and no candidate receives a majority vote in the election, an existing director would typically remain in office until a replacement director is elected by majority vote. Under the new law, a director standing for re-election may provide a notice of resignation to the board which is effective if the director does not receive votes constituting a majority of the shares voted at the shareholders' meeting. This new legislation strengthens the ability of a corporation to institute an effective majority voting scheme and brings New Jersey law in line with Delaware law.
The passage of these bills are part of a broad initiative by Governor Corzine to make New Jersey more attractive to businesses. The New Jersey legislature has been considering several other updates to the State's business laws and it is likely that additional bills will be signed into law in the coming months.