Corporate Governance

Proxy Contests and Access

By J. Robert Brown

We have a student post today on the aborted proxy contest with respect to the board of Office Depot.  The effort demonstrates the costs imposed on insurgents (both solicitation fees and litigation expenses) and the practical difficulties incurred when management opposes the efforts.  The net effect is that very few proxy contests actually occur.  The result is that directors rarely lose to shareholders.  To the extent a director is removed from office, it is far more likely a result of the board declining to renominate.  In other words, directors wanting to remain in office and retain their substantial fees need to make management, not shareholders, happy (despite a contrary view held by a VC on the Delaware Chancery Court). 

This is a result of the evolution in the law of Delaware, declining to impose meaningful shareholder oriented duties on directors.  It is another argument for access. 

And, by the way, how well are the directors of Office Depot paid?  Quite well.

Full post as published by The Race to the Bottom on May 16, 2008 (boomark / email).