44 Pages Posted: 27 Nov 2013 Last revised: 14 Jul 2014
Date Written: November 25, 2013
“I don't care who does the electing, so long as I get to do the nominating.” William M. (“Boss”) Tweed.
Shareholder election of directors is widely accepted as an important tool in corporate governance. As Boss Tweed’s aphorism demonstrates, the shareholder’s ability to nominate director candidates should therefore also be deemed important. With ever-increasing shareholder activism and increased sensitivity on the part of management to the prospect of director election contests, the scope of the right to nominate and the scope of permissible limitations of that right are likely to come under increasing scrutiny. Yet corporate statutes are largely silent on the subject of the right to nominate, and case law governing the ability to limit that right is likewise only primitively developed.
This article explores that gap, concluding first that the shareholder right to nominate ought to be viewed as a facet of the statutory right to present proper business at the annual meeting of stockholders. As such, that right can be circumscribed through private ordering only in limited ways, to promote an orderly electoral process. With that principle in mind, the article examines the validity and enforceability of a variety of actual and potential charter and bylaw provisions, including provisions requiring advance notice of nominations, eliminating the right to nominate altogether, or conditioning exercise of that right on minimum levels or duration of share ownership.
Keywords: corporation law, corporations, directors, shareholders, director nominations, corporate governance
JEL Classification: K22
Suggested Citation: Suggested Citation