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Recent Amendments to Delaware’s “Books and Records” Statute and Their Effect on Stockholder Oversight
By: Robert Finkel and Adam Blander, Wolf Popper
This article from attorneys at Wolf Popper LLP discusses Delaware's “books and records” statute—a powerful tool for pension funds investigating corporate misconduct—and whether recently enacted legislation has the potential to weaken this powerful tool.
This is an excerpt from NCPERS Spring 2025 issue of PERSist.
Section 220 of Delaware's General Corporation Law (DGCL) governs stockholders' rights to inspect corporate books and records and is a critical tool for public investors seeking to investigate corporate mismanagement, assess litigation prospects, or monitor board activity. Recently enacted legislation known as Senate Bill 21 amends Section 220. While the bill's supporters assert that it merely codifies existing caselaw and clarifies inspection procedures, critics, including advocates for pension and retirement fund interests, warn it could constrain much-needed stockholder oversight over directors, executives, and other corporate insiders.
The “Basics” on Books and Records
The books and records request process begins with a formal demand letter outlining the stockholder's “proper purpose” for seeking inspection and identifying the materials sought to further that purpose. If a corporation refuses to comply, the stockholder may petition the Delaware Court of Chancery to compel disclosure in a summary proceeding. Over time, the Court of Chancery has established principles governing Section 220 requests, and there is considerable caselaw defining what constitutes a “proper purpose.” Stockholders investigating corporate misconduct, for example, demonstrate a proper purpose through showing a “credible basis” to suspect wrongdoing.
Caselaw has also identified limitations on the types of documents stockholders can access. Thus, to avoid intrusive demands, the term “books and records” has been construed more narrowly than the broad discovery to which litigants are entitled in plenary litigation. For example, courts routinely limit stockholders to formal materials, such as minutes and presentations from board or committee meetings. As one court put it: “The starting point (and often the ending point) for an adequate inspection will be board-level documents that formally evidence the directors' deliberations and decisions and comprise the materials that the directors formally received and considered.” If stockholders seek access to additional documents, such as emails among directors and officers, they usually bear the burden of demonstrating that the board materials are insufficient to investigate wrongdoing. This burden can be met by showing that the corporation failed to keep proper board-level records or otherwise comply with “traditional board formalities.”
Summary of SB 21
Introduced on February 17, 2025 and enacted into law on March 25, 2025, SB 21 implements multiple amendments to the DGCL (most of which are beyond the scope of this article). The bill for the first time, defines the term “books and records” to include various categories of formal governance materials, such as the corporation's certificate of incorporation, bylaws, and documents incorporated by reference therein (many of which are already public), as well as minutes and materials from board and committee meetings, written communications sent to stockholders, annual financial statements, and director independence questionnaires.
The bill also formalizes procedural requirements already recognized by many Delaware courts, including a stockholder's obligation to state a demand with “reasonable particularity,” demonstrate “good faith and a proper purpose” for seeking inspection, and show that the requested materials are “specifically related” to that purpose. SB 21 also permits corporations to impose confidentiality restrictions, redact nonresponsive material, and require stockholders to agree that the full books and records production be “incorporated by reference” into any related pleading in order to prevent cherry-picking of documents in a subsequent complaint.
Importantly, SB 21 requires that the stockholder show a “compelling need” for additional records beyond those expressly listed (such as less formal communications like emails) and only after demonstrating “by clear and convincing evidence that such specific records are necessary and essential” to further the underlying inspection purpose. These provisions may hinder investors' ability to uncover corporate misconduct, particularly in light of the fact that, unlike routine communications, formal board materials are often reviewed by company lawyers and carefully drafted in a manner to minimize litigation risk.
Overall, SB 21 may provide additional specificity and predictability for books and records investigations; however, it reduces the Court of Chancery's flexibility and discretion as a court of equity to fashion context-appropriate relief. For more in-depth analysis of the legislation and its potential impact, please refer to the extended version of this article available here on the Wolf Popper website.
Bios: Robert Finkel and Adam Blander are partners at Wolf Popper LLP. Stephanie Bousley, a Wolf Popper legal intern, contributed to the drafting and research of this article.
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