Under Delaware law, what makes a bylaw a proper subject for shareholder action in CA, Inc. v. AFSCME Employees Pension Plan?

• A. Bylaws that regulate the process of director decision-making are proper; bylaws that dictate the substance of a specific business decision are not.
• B. Bylaws that set director compensation are always valid.
• C. Bylaws that require a particular business outcome are valid.
• D. Any bylaw adopted by shareholders is automatically valid.

Answer: (A)

Procedural controls on governance are permissible, while directives that force a specific business outcome are not. Under Delaware law, bylaws may govern how directors make decisions—for example, requiring the board to consider certain factors or to follow particular decision-making processes. This aligns with preserving the board’s fiduciary duties and the business judgment rule, because it shapes governance without dictating a particular result.

In CA, Inc. v. AFSCME Employees Pension Plan, the court affirmed that a bylaw that regulates the decision-making process is acceptable, whereas a bylaw that would force a specific substantive outcome would infringe on the board’s discretion and fiduciary duties. So the correct principle is that bylaws can set process, not outcomes.

The other options run afoul of this: a bylaw mandating director compensation prescribes a substantive decision rather than a mere process, and the idea that any shareholder-adopted bylaw is automatically valid ignores the limits imposed by fiduciary duties and law. Similarly, requiring a particular business outcome is exactly the type of substantive control the case rejects.