Professor Bainbridge...on law, politics, religion, culture & food

Shareholder access again—updated

Over at TheCorporateCounsel.net Blog, Broc blogs on the latest development in the shareholder access saga:

Readers of WSJ might have noticed a full-page advertisement on Thursday by a group of investors calling for the SEC to adopt a shareholder access rule. This ad followed a 9/23 press conference held by members of Calpers, AFSCME, CalSTERS, New York State Comptroller, New York City Comptroller and Connecticut State Treasurer on the same point. At the press conference, AFSCME released a survey showing that 84% of 1,030 individual investors stated that there should be a process to allow shareholders to nominate candidates for boards. The survey also showed that a majority of the respondents believed that management is not in the best position to determine who should be nominated. Many institutional investors have made clear that this rulemaking is their top priority right now.

My take? The SEC almost certainly has the authority to go forward with a shareholder access rulemaking (see here). But, on the merits, shareholder democracy is a very bad idea (see here and here). For those who want even more details, I discuss the scope of the SEC's reulmaking authority over the proxy statement at pp. 505-11 of my Corporation Law and Economics treatise, and provide an economic analysis of shareholder democracy at pages 512-17 thereof. (If you think that's a shamelessly self-serving plug, you're right.)

UPDATE: I'm reposting this discussion to move it up the scrolling order in light of this report from TheDeal.com:

The Securities and Exchange Commission is expected next month to issue draft rules that would allow a majority of shareholders to make a proxy proposal criticizing a public company's governance record and to seek investor approval to nominate their own board candidates. ... Under the SEC proposal, obtaining the right to nominate a board member by proxy would be a two-step process. First, a majority of investors must approve a shareholder measure nominating a board candidate. [Second, if] approved, that candidate would appear on the proxy ballot the following year. Only shareholders who own at least 3% to 5% of a company for a minimum of one year would qualify to nominate a candidate on the corporation's ballot. (Link via Corp Law Blog.)

My take remains as above. Corporations are not New England town meetings and shareholders are not owners (the corporation being a legal fiction representing a network of contracts incapable of being owned). If the links above do not persuade you, try my article Director v. Shareholder Primacy in the Convergence Debate. (Or, better yet, buy my book!)