Which mechanism is acceptable for permitting indemnification of a D&O?

• A. By management alone
• B. By shareholder vote
• C. By non-party director vote
• D. By outside counsel report

Answer: (C)

Indemnification decisions should come from a body free of personal stake in the outcome. The proper mechanism is a vote by directors who are not parties to the matter—disinterested directors. When a director seeks indemnification, those who are not involved in the dispute evaluate the request and, if appropriate, approve it. This protects against self-serving decisions by management or the person seeking indemnification.

Why the other options don’t fit: management alone cannot authorize indemnification because that would involve a self-dealing decision. A shareholder vote isn’t the typical mechanism for routine indemnification decisions. An outside counsel report can inform the decision but does not itself grant indemnification.