Commission Gallagher's and Professor Grundfest's Wrongful Attack on the Shareholder Rights Project
Jonathan R. Macey
Yale Law School
April 27, 2015
Yale Law & Economics Research Paper No. 526
This paper offers a critique of a recent paper, entitled “Did Harvard Violate the Federal Securities laws? The Campaign Against Classified Boards of Directors,” that was issued by SEC Commissioner Daniel Gallagher and Professor Joseph Grundfest. Gallagher/Grundfest claim that declassification proposals submitted by institutional investors assisted by the Shareholder Rights Project (SRP) violated the federal securities laws by not including sufficient references to studies supporting staggered boards. My analysis shows that Gallagher/Grundfest wrongfully accused the SRP.
Among other things, I explain that the SRP proposals were consistent with the SEC’s long-standing rules, policies and practices; that the weakness of the Gallagher/Grundfest’s omission claim is reflected in the fact that not a single company of the more than one-hundred major companies receiving the proposals chose to raise such a claim; that the actions against the SRP that Gallagher/Grundfest urge are without any precedent; and that Gallagher/Grundfest inconsistently endorse non-inclusion of references by issuers while seeking to treat harshly proponents that do so. I also show that Gallagher/Grundfest do not aim at making shareholder voting more informed but rather seek to avoid shareholder votes on board declassification. In addition, I explain that responses to my criticism that Professor Grundfest published further demonstrate that the authors wrongfully accused the SRP.
My analysis, which builds on a series of posts I published on the Harvard Law School Forum on Corporate Governance and Financial Regulation, is supported by a joint statement that a group of 34 senior professors from 17 leadings law school subsequently issued to opine that the Gallagher/Grundfest claims are meritless and to call for their withdrawal. I conclude that, having wrongfully accused the SRP, Gallagher/Grundfest should withdraw their allegations.
Number of Pages in PDF File: 38
Keywords: Shareholder Rights Project, Daniel Gallagher, Joseph Grundfest, Rule 14a-8, shareholder proposals, classified boards, staggered boards, declassification, destaggering
JEL Classification: K22, K42
Date posted: April 29, 2015 ; Last revised: August 6, 2015