96 Pages Posted: 9 Aug 2010 Last revised: 6 Sep 2010
Date Written: August 8, 2010
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has ensured that a shareholder’s ability to place nominees to the board onto the corporate ballot, an objective long advocated by the institutional investor community, will soon be implemented by the Securities and Exchange Commission. Advocates of proxy access urge that it will help hold Boards of Directors accountable to their owners. Critics argue that it will give conflicted shareholders, like unions and state pensions, power they will use to facilitate their political objectives at the expense of ordinary shareholders. The shareholder primacy and director primacy theories of corporate law have framed an extensive debate in the literature. Regardless of which theory holds force, we can expect Boards to implement defensive strategies in the wake of proxy access to limit shareholder power, in the same way that Boards implemented defensive tactics in response to the hostile takeovers of the mid-1980s. Delaware’s review of Board proxy access defenses will shape its role in the foreseeable future in much the same way review of Board takeover defenses shaped its role over the last 20 years.
This article in part considers what strategies may be useful for boards defending against proxy access and designs novel methods boards might consider. It also examines how Delaware judges are likely to review those defenses under a vast body of jurisprudence protecting the shareholder franchise, also known as the Blasius line of cases. Though the Blasius cases protect the shareholder franchise, they do not necessarily prohibit board policies, bylaws, or charter amendments with an incidental effect on the shareholder’s federal nomination right. Finally, this article considers whether the defenses considered are likely to be struck down as pre-empted by federal law or prohibited by the federal securities laws or stock exchange listing requirements. The article offers a roadmap for how boards are likely to respond to proxy access and how Delaware’s role as arbiter of the shareholder/manager relationship is likely to evolve in the new environment.
Keywords: Alcian, Anabtawi, Berle, CalPERS, collective action, Demsetz, governance, Grundfest, Lamb, legal liability, Lipton, Lucian Bebchuk, Macey, Means, megaphone externalities, proprietary information, Riskmetrics, Romano, Roosevelt era, Rosenblum, SEC, Schwab, solicitation, Stephen Bainbridge, Strine
JEL Classification: G30, G34, M14
Suggested Citation: Suggested Citation
Verret, J. W., Defending Against Shareholder Proxy Access: Delaware's Future Reviewing Company Defenses in the Era of Dodd-Frank (August 8, 2010). George Mason Law & Economics Research Paper No. 10-37. Available at SSRN: https://ssrn.com/abstract=1655482 or http://dx.doi.org/10.2139/ssrn.1655482