Setting Optimal Rules for Shareholder Proxy Access

78 Pages Posted: 18 Jan 2010 Last revised: 6 Sep 2010

Brett McDonnell

University of Minnesota Law School

Date Written: January 15, 2010

Abstract

Recent developments in Delaware concerning shareholder bylaws and the SEC proposal concerning shareholder proxy access have moved the U.S. closer to a set of optimal rules for shareholder proxy access in nominating director candidates, but not all the way there. These rules must address both the default rule which applies in the absence of agreement within a corporation to the contrary, and the altering rule which specifies who within a corporation may choose to opt out of the default provisions. Applying principles of accountability and freedom of contract, the optimal default rule would allow for certain shareholders to use the corporate proxy to nominate director candidates. The optimal altering rule would make it easy for shareholders to propose bylaws under the Rule 14a-8 process which opt out of the default provisions. Although it would be desirable were states to set these rules on their own, a degree of managerialism at the state level combines with the history of extensive SEC regulation of the proxy process to give the SEC an important role in helping set the rules. As matters currently stand, Delaware is appropriately flexible but has the wrong default rule, while the SEC’s proposal has the right default rule but too little flexibility.

Keywords: shareholder bylaws, proxy access, default rules, altering rules

JEL Classification: G3, H77, K22

Suggested Citation

McDonnell, Brett, Setting Optimal Rules for Shareholder Proxy Access (January 15, 2010). Arizona State Law Journal, Forthcoming; Minnesota Legal Studies Research Paper No. 10-03. Available at SSRN: https://ssrn.com/abstract=1537211 or http://dx.doi.org/10.2139/ssrn.1537211

Brett H. McDonnell (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-625-1373 (Phone)

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