Sticky Charters? The Surprisingly Tepid Embrace of Officer-Protecting Waivers in Delaware

This article investigates the reaction to a much-heralded 2022 legal reform in Delaware that permitted a corporation’s charter to exculpate its officers from monetary exposure for breaching their fiduciary duty of care. To isolate reactions to this statutory reform, we make extensive use of generative AI tools to identify and interpret charter amendments that introduce officer-facing waivers. We find a surprisingly tepid rate of uptake among Delaware corporations through the end of the first post-reform year, notwithstanding widespread predictions that corporate entities would quickly storm the exculpation exits once permitted to do so.



Our study makes two contributions to the empirical study of law—one methodological and the other substantive. Methodologically, we develop a novel and powerful use case for deploying large language models as a tool for distilling and extracting technical provisions from legal texts (in this case corporate charters), allowing us to accelerate and streamline an endeavor that would have consumed substantial time and resources using traditional human-labeling protocols. Notably, and in a significant departure from previous machine learning tools, ChatGPT accomplishes this set of tasks without the need for training data specifically tailored for this purpose. Perhaps most impressive is the accuracy with which ChatGPT can operate: we perform several validation exercises, which generally indicate that our proposed method yields highly accurate results.



Substantively, we demonstrate that Delaware’s statutory invitation attracted few takers in its first year of effectiveness: specifically, we show that only a modest minority of eligible corporations amended their charters to include officer-facing waivers. This tepid rate of uptake, moreover, persists even in corporations that went public after the reform’s effective date, suggesting that transaction costs are unlikely to be the culprit for the listless response. Furthermore, we show that stock market investors also exhibited a muted response to the reform, raising doubts about whether firms feared amendments would trigger an adverse market reception. Our results seem more consistent with alternative explanations, ranging from the plausible irrelevance of Delaware’s reform, to a risk-averse reticence among corporate managers who rationally adopt a “wait and see” approach to gauge how such waivers are received by both courts and corporate stakeholders while keeping their options open.