Amendments to the Minnesota Business Corporation Act Could Affect Corporate Governance Structures

On April 15, Gov. Tim Pawlenty signed into law a number of amendments to the Minnesota Business Corporation Act, which will become effective on August 1. Although some of the amendments are of a technical nature, others may impact the fundamental governance structure of Minnesota corporations.

Executive Summary

In summary, the amendments:

• Expressly permit the board to grant authority to the CEO to appoint and remove other officers (except the CFO)
• Change the required vote for public corporations to eliminate cumulative voting
• Permit a corporation to keep required books and records at a place other than its principal executive offices
• Expressly grant the board the same power to unilaterally amend the articles to increase the number of authorized shares in connection with a stock dividend as it has in connection with a stock split
• Confirm that a corporation may transfer all or substantially all of its assets to an indirect wholly owned subsidiary without shareholder approval

Three of these amendments warrant expanded discussion.

Appointment and Removal of Officers

The Minnesota corporate statute currently does not expressly grant the power to appoint or remove corporate officers to anyone other than the board of directors. This is true no matter how many officers the corporation has and no matter the level of the officer.

The 2010 amendments clarify that each corporation may tailor the appointment power to its own circumstances. To the extent provided in a corporation's articles of incorporation, bylaws, or a board resolution, the CEO may appoint or remove any officer other than the CFO. Depending on its own needs, a board may delegate some, all, or none of this power to the CEO. For example, a board may retain the sole authority to appoint and remove executive officers while delegating that power to the CEO with respect to all other officers. Delegating removal authority may be especially useful when an officer's employment is terminated following evidence of wrongdoing. A number of corporations have already revised their bylaws in anticipation of the effective date of the new law.

Cumulative Voting and Public Companies

Cumulative voting permits shareholders to cast multiple votes for director candidates based on the number of directors to be elected. For example, if there are ten directors to be elected, a holder of 100 shares would be entitled to 1,000 votes that the holder could allocate to one or more candidates.

Minnesota is one of three states that currently require a very high super-majority shareholder vote for a corporation's elimination or modification of cumulative voting. This super-majority vote can be virtually impossible for a public corporation to achieve, even when shareholders overwhelmingly support a change.

The 2010 amendments recognize that the current law can work to frustrate shareholders' wishes and that cumulative voting was never designed or intended to work well with public corporations. Under the amendments, shareholders of publicly held corporations can eliminate or modify cumulative voting by the affirmative vote of a majority of the voting power present at a shareholders' meeting. The super-majority requirement is retained for non-public corporations.

Books and Records

Current law requires that corporations keep certain specified books and records at their principal executive offices. This requirement may be impracticable for smaller companies whose minute books and other corporate records are often located at the offices of their attorneys or other professional advisers. The 2010 amendments permit a corporate board to store such records offsite, so long as they are produced for inspection within ten days after a valid demand.