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Do Skeptics of Shareholder Empowerment Ignore Critical Policy Considerations?

JW Verret claims:

Skeptics of shareholder empowerment, among whom Professor Stout and Professor Stephen Bainbridge are the leading voices, tend to ignore two critical policy considerations. First, Delaware corporate law has ensconced the shareholder franchise as the basis for its elegant and risk-savvy review mechanism of board decisions, both in the form of the business-judgment rule and the demand requirement for derivative litigation. Second, the relevant question with respect to shareholder empowerment is not how well the status quo has performed in the past, but how much better markets might perform under narrowly tailored proxy reform that would make elections a realistically balanced endeavor.

Speaking just for me, I don’t think the charge has traction. I’ve written that:

“The Delaware Court of Chancery tried to provide such an explanation in Blasius Industries, Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988), opining that the “shareholder franchise is the ideological underpinning upon which the legitimacy of directorial power rests,” id. at 659, but this is mere ipse dixit.”—Director Primacy and Shareholder Disempowerment, 119 Harvard Law Review 1735, 1749 n.74 (2006).

And argued that:

“Despite the rhetorical allegiance of Delaware case law to the free exercise of the shareholder franchise, however, Delaware law in fact treats constraints on shareholder choice as a means to an end rather than as an end in and of itself. ... See generally Bainbridge, supra note 8 [i.e., Stephen M. Bainbridge, Corporation Law and Economics (2002)], at 718-38 (reviewing Delaware takeover case law). Delaware chancellors Allen, Jacobs, and Strine recently observed that Delaware courts have beat a steady retreat from the exacting Blasius standard of review applicable when target board action disenfranchises shareholders, by folding it “into Unocal, effectively making the former a subset of the latter.” Allen et al., supra note 33 [i.e., William T. Allen, Jack B. Jacobs & Leo E. Strine, Function over Form: A Reassessment of Standards of Review in Delaware Corporation Law, 56 Bus. Law. 1287(2001)], at 1316.”—Director Primacy in Corporate Takeovers: Preliminary Reflections, 55 Stanford Law Review 791, 813-14 & n.130 (2002)

It’s not that I’ve ignored the claims of some Delaware jurists about the role of the shareholder franchise. I just think those claims are wrong. Accordingly, I’ve acknowledged them and criticized them.

As for the claim that I ignore the question of “how much better markets might perform under narrowly tailored proxy reform that would make elections a realistically balanced endeavor,” a fair reading of articles like The Case for Limited Shareholder Voting Rights, 53 UCLA Law Review 601 (2006), would conclude that much of the argument is forward looking. Indeed, my core claim that “shareholder voting must be constrained in order to preserve the value of authority” self-evidently is a claim about how markets (broadly defined) would respond to an expansion of the shareholder franchise.

Verret may think I’m wrong in my analyses of these claims, but I don’t think it’s fair to say that I’ve ignored them.