Electronic Balloting
for Standards Consortia
Guidelines for Compliance with
Delaware General Corporation Law
20 July, 2006
Prepared by: David White 503.963.3519 [email protected]
Consortia Governance: electronic
consent in compliance with
Delaware Law
Delaware General Corporation Law has become a de facto standard for companies and nonprofits who incorporate in the United States. Delaware provides a very stable legal platform and has a reputation for competence and corporate “friendliness.” Nearly 700,000 businesses and nonprofits are Delaware corporations. A significant percentage of standard setting organizations take advantage of the Delaware system.
Standard setting organizations (SSOs) and standards developing organizations (SDOs) publish specifications, recommendations or standards that are developed collaboratively by members and approved by consensus vote. SSOs and SDOs incorporated under Delaware General Corporation Law must comply with the state's very specific standards governing the process of obtaining members' consent in matters such as the election of officers and the approval of standard specifications. Traditionally, consent gathered outside of or in lieu of a meeting has been granted using letter ballots. However, standards consortia (SSOs) and a growing number of SDOs are oriented toward the the speed of electronic consensus-building tools such as email or electronic balloting systems. Kavi's electronic balloting tools are in wide use among standards consortia. The purpose of this white paper is to provide
information on how to apply these electronic balloting systems in compliance with Delaware corporate law.
This document should not be considered definitive legal guidance. It merely represents our interpretation of the standards set forth in the Delaware corporate statutes. Organizations should seek advice from their own counsel on the appropriateness of the techniques outlined in this document.
Introduction
If your organization wants to take advantage of the speed, convenience and cost-saving potential of electronic balloting for member consent, or if you currently use an electronic balloting system in an organization incorporated in Delaware, there are four important concepts you must understand in order to comply with Delaware law and the laws of other states with statutes modeled upon Delaware General Corporation Law.
1. The consent granted must be signed and dated.
2. The consent must be in writing
3. Consent must be properly delivered to the organization's corporate offices in paper form unless otherwise specified in the corporation bylaws or approved by the board.
4. All parties who do not execute a properly signed and delivered consent or ballot, but who are eligible to vote on a corporation action must be given special notice of the
corporate action taken on the basis of member consent or ballot.
This white paper is intended to help you understand how these concepts impose certain requirements on standard-setting organizations and SDOs using electronic or email balloting and offers specific guidelines for compliance with widely accepted corporation law.
Signed and Dated Consent
What the law requires
This requirement is pretty straight forward – in general, a consent or ballot is only valid if it is signed and dated. The statutory requirement is as follows:
(c) Every written consent shall bear the date of signature of each stockholder or member who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this section to the corporation, written consents signed by a sufficient number of holders or members to take action are delivered to the corporation by delivery to its registered office in this State, its
principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders or members are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.
Written Consent
What the Law Requires
This requirement is pretty straight forward as well – a consent is only valid if its actually in writing, or it meets certain requirements that permit the company to legally treat the consent as if it were written.
Consent by electronic means (email, fax, or electronic ballot) can meet these requirements and can, therefore, be treated as a consent in writing as long as the sender and the date of transmission can be readily determined from the electronic transmission. The statute reads as follows:
(d)(1) An electronic transmission consenting to an action to be taken and transmitted by a stockholder, member or proxy holder, or by a person or persons authorized to act for a stockholder, member or proxy holder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such electronic
transmission sets forth or is delivered with information from which the corporation can determine (A) that the electronic transmission was transmitted by the
stockholder, member or proxy holder or by a person or persons authorized to act for the stockholder, member or proxy holder and (B) the date on which such stockholder, member or proxy holder or authorized person or persons transmitted such electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed.
Recommendations for compliance
If you're tabulating ballots received as email, and the sender ID in the email header matches the member's email address in the official corporate member database, then you have the requirement for signature met. The header will also include the date and time that the email was received. That date and time constitute the date and time at which the sender's
consent was granted.
However, email has it's limitations.
1. It's relatively easy to “spoof” an email system, i.e., send a message that appears to come from someone else. Any hacker with reasonable skill can execute an email spoof.
2. Email is insecure. Unless encrypted, one should assume that one's email is being read by someone other than the intended receiver.
3. Having an in box full of consent emails does not give you the permanent record you'll need to meet some of the other requirements of Section 228 (see the next section, “Delivered”). You can get a bit closer if you use an archived, threaded email reflector for balloting - one that allows you to sort the incoming email by thread, date, subject, sender, etc. The archive can provide an audit trail and give members with the necessary access privileges the ability to view the complete results on line. However, the archive is not tamper-proof. And you need to make sure that the host's backup and archiving procedures give you a permanent record safe from hard disk crashes and hackers.
If you're using Kavi's balloting system instead of email, then the requirements are easy to meet once you have the tools properly configured. Nonetheless, the ballot creator must make the right choices when configuring any given ballot seeking member consent for a corporate action.
The Kavi electronic balloting system relies on email for notification but uses a form and database back end to support the voting process. Pages that display balloting information and any communication between the member's computer and the server where data is stored can be run under SSL encryption.
The signature requirement is met by virtue of the fact that each member has a unique user name and password and must log in to the system in order to access the balloting system and vote on any consent issue. The site logs attach that user's identity to any action he or she takes after logging in. Secondly, the ballot that a user submits is entered into the database with metadata that includes that member's identity and the date and time upon which his vote was cast. This combination of factors satisfies the requirement that the corporation be reasonably sure that the consent came from the member and no one else.
Figure 1. Detailed ballot results with date and time stamp
Delivery
What the law requires
means that meet the requirements for a consent in writing as discussed above) must be delivered to the organization by hand or by registered or certified mail. An electronic consent that meets the requirements to be considered signed, dated and in writing is considered to be delivered once it is printed and the printed copy is delivered to the organization. The relevant statutory provisions follow:
(b) Unless otherwise provided in the certificate of incorporation, any ... consents in writing ... shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of members are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.
(d) (1) . . . No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders or members are recorded. Delivery made to a corporation's registered office shall be made by hand or by certified or registered mail, return receipt
requested.
Notwithstanding the foregoing, however, an electronic consent (including electronic ballots) may be delivered by any other means, as long as the delivery method is approved by the organization’s board of directors (or equivalent governing body), as stated in the following statutory provision:
(d) (1) . . . consents given by telegram, cablegram or other electronic transmission, may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders or members are recorded if, to the extent and in the manner provided by resolution of the board of directors or governing body of the corporation.
Recommendations for compliance
The good news is that unless your bylaws or board of directors have specifically prohibited it, you probably already have the authorization you need to consider electronic consent or balloting. Nonetheless, it's a good idea to make that authorization explicit either through an amendment to the bylaws or through a resolution of the board of directors that specifies a process for how ballots are delivered to the organization from the balloting system and how the ballots will be archived.
Check your current bylaws. If there is no provision that specifically allows electronic delivery of consent, then work with the board and your corporate counsel either to introduce and ratify an amendment to the bylaws or, at a minimum, adopt a resolution to do so. The amendment or resolution should include language that allows for use of an on line balloting system that has been reviewed and deemed secure enough to ensure the integrity of the balloting results.
Special Notice
What the law requires
Whenever members approve a corporate action (e.g. electing officers, amending governing documents or ratifying a specification) by less than unanimous consent and without a
meeting, then the organization must give “prompt” notice of that action to all members who did not actually approve (i.e. did not vote or voted “no”). The statutory language follows:
(e) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders or members who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders or members to take the action were delivered to the corporation as provided in
subsection (c) of this section.
Recommendations for compliance
There are some relatively simple steps you should take to ensure compliance with the “special notice” requirement. As soon as an electronic ballot has closed, all eligible voters should be sent an email that includes:
• The date and time at which the ballot closed.
• The results of the ballot or a link to a web page where ballot results can be viewed.
• A statement clearly indicating the corporate action to be taken as a result of the ballot. This can also be accomplished by a link to the ballot information as long as the ballot page includes a complete and concise description of the action or actions taken (e.g., specification version x.1 is approved as a standard).
• A detailed ballot report should be printed and entered into the corporate record.
Here's a sample ballot report ready for filing in the corporate books from the latest release of Kavi® Groups and its balloting system.
Figure 2. Sample ballot report showing details of the opening and closing of the ballot
Sharing Ballot Results
The fact that a consent has to be signed and dated and entered into the corporate record for any member in good standing to see means that balloting for any issue that results in a corporate action will be open. The law effectively rules out anonymous balloting on any issue that requires
organization-wide consent. Your voting members should be informed of this in order to avoid any surprises that result from an expectation of anonymity.
Anonymous balloting may be used for issues that don't require the consent of the general membership. And, in those cases, the signature and delivery requirements do not apply. Examples of ballots that could be conducted anonymously include a committee ballot to decide whether or not to submit a specification draft for general membership approval or a vote on the location for the next meeting or plenary session.
Author's Note: The Author gratefully acknowledges the guidance and assistance of Vicki Ballou of Tonkon Torp, LLC and Russ Schlossbach of Gesmer Updegrove.
Appendix A:
Delaware General Corporation Law
Subchapter VII
Section 228. Consent of stockholders or members in lieu of meeting.
(a) Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.
(b) Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at a meeting of the members of a nonstock corporation, or any action which may be taken at any meeting of the members of a nonstock corporation, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by members having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all members having a right to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of members are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.
(c) Every written consent shall bear the date of signature of each stockholder or member who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this section to the corporation, written consents signed by a sufficient number of holders or members to take action are delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders or members are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(d)(1) A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder, member or proxyholder, or by a person or persons authorized to act for a stockholder, member or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (A) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder, member or proxyholder or by a person or persons authorized to act for the stockholder, member or proxyholder and (B) the date on which such stockholder, member or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders or members are recorded. Delivery made to a corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic
transmission, may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders or members are recorded if, to the extent and in the manner provided by resolution of the board of directors or governing body of the corporation.
(2) Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
(e) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders or members who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders or members to take the action were delivered to the corporation as provided in subsection (c) of this section. In the event that the action which is consented to is such as would have required the filing of a certificate under any other section of this title, if such action had been voted on by
stockholders or by members at a meeting thereof, the certificate filed under such other section shall state, in lieu of any statement required by such section concerning any vote of stockholders or members, that written consent has been given in accordance with this section. (8 Del. C. 1953, § 228; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, § 14; 57 Del. Laws, c. 148, § 16; 58 Del. Laws, c. 235, § 4; 66 Del. Laws, c. 136, §§ 12-14; 67 Del. Laws, c. 376, §§ 7, 8; 70 Del. Laws, c. 349, § 4; 72 Del. Laws, c. 343, § 15; 73 Del. Laws, c. 82, § 11.)