Corporate Governance

Director Elections, Institutional Investors, and Shareholder Rights

By J. Robert Brown

Efforts by institutional investors to establish some type of system of majority voting has engendered criticism, some coming from a Vice Chancellor on the Delaware Chancery Court.  But in fact those criticizing the effort never mention that majority voting was apparently the rule until the 1980s.  As Julian Velasco from Notre Dame has noted in his article,Taking Shareholder Rights Seriously: 

• The general rule is that shareholder action requires some type of majority vote.  In the 1980s, the rule was changed with respect to the election of directors.  State corporate codes now provide that directors are elected by a plurality vote. (footnotes omitted)

As I have noted in my paper,The SEC, Corporate Governance, and Shareholder Access to the Boardroom, the age of shareholder activism didn't begin until the late 1980s.  As a result, prior to that date, shareholder rights were steadily eroded, with little concerted opposition.  As the paper points out, the Commission proposed allowing shareholders to have access to the company's proxy statement for their nominees back in 1942 but did not adopt the provision because of opposition from corporate American and inadequate support from shareholders.

It has taken an era of shareholder activism to slow the erosion, the notion of fiduciary obligations proving inadequate for the task. 

Full post as published by The Race to the Bottom on March 22, 2008 (boomark / email).