The Case for Employee Referenda on Transformative Transactions as Shareholder Proposals

Abstract:     
This Comment describes and advocates for employee referenda as implemented through a SEC Rule 14a-8 shareholder proposal. The proposal provides for a nonbinding referendum amongst all employees whenever the corporation's shareholders must vote to approve a merger, acquisition, sale of substantially all assets, or other transformative transaction. The purpose of the referendum is to provide employees with a voice in the transaction and to provide shareholders with a mechanism for tapping into employee sentiment. Because the referendum would be nonbinding, it is best viewed as an informational tool for shareholders and employees to use in policing management's transactions. Given the flaws in the market for friendly mergers and acquisitions (as developed in the finance literature), this tool could be a helpful corrective for the incentives and biases behind many ill-fated transactions.
The Comment also discusses whether the proposal could be excluded under Rule 14a-8 as improper under state corporate law or as a violation of law. Because the proposal is a procedural, nonbinding mechanism that does not constrain managerial authority, it should not be subject to exclusion.

Number of Pages in PDF File: 10

Keywords: Shareholder Proposals, Employee Referenda, Corporate Governance, Mergers And Acquisitions, SEC Rule 14a-8

JEL Classification: G34, J53, K22, K31

Accepted Paper Series