Quieting the Shareholders' Voice: Empirical Evidence of Pervasive Bundling in Proxy Solicitations

65 Pages Posted: 6 May 2015 Last revised: 9 Dec 2016

James D. Cox

Duke University School of Law

Fabrizio Ferri

Miami Business School

Colleen Honigsberg

Stanford Law School

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Date Written: December 8, 2016

Abstract

The integrity of shareholder voting is critical to the legitimacy of corporate law. One threat to this process is proxy “bundling,” or the joinder of more than one separate item into a single proxy proposal. Bundling deprives shareholders of the right to convey their views on each separate matter being put to a vote and forces them to either reject the entire proposal or approve items they might not otherwise want implemented.

In this Paper, we provide the first comprehensive evaluation of the anti-bundling rules adopted by the Securities and Exchange Commission (“SEC”) in 1992. While we find that the courts have carefully developed a framework for the proper scope and application of the rules, the SEC and proxy advisory firms have been less vigilant in defending this instrumental shareholder right. In particular, we note that the most recent SEC interpretive guidance has undercut the effectiveness of the existing rules, and that, surprisingly, proxy advisory firms do not have well-defined heuristics to discourage bundling.

Building on the theoretical framework, this Article provides the first large-scale empirical study of bundling of management proposals. We develop four possible definitions of impermissible bundling and, utilizing a data set of over 1,300 management proposals, show that the frequency of bundling in our sample ranges from 6.2 percent to 28.8 percent (depending on which of the four bundling definitions is used). It is apparent that bundling occurs far more frequently than indicated by prior studies.

We further examine our data to report the items that are most frequently bundled and to analyze the proxy advisors’ recommendations and the voting patterns associated with bundled proposals. This Article concludes with important implications for the SEC, proxy advisors, and institutional investors as to how each party can more effectively deter impermissible bundling and thus better protect the shareholder franchise.

Keywords: SEC, bundling rules, shareholder voting, empirical analysis

JEL Classification: K2, K22

Suggested Citation

Cox, James D. and Ferri, Fabrizio and Honigsberg, Colleen and Thomas, Randall S., Quieting the Shareholders' Voice: Empirical Evidence of Pervasive Bundling in Proxy Solicitations (December 8, 2016). Southern California Law Review, Vol. 89:1179, 2016; Vanderbilt Law and Economics Research Paper No. 15-10; Columbia Business School Research Paper No. 15-56; Duke Law School Public Law & Legal Theory Series No. 2015-22. Available at SSRN: https://ssrn.com/abstract=2602827

James D. Cox

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7056 (Phone)
919-613-7231 (Fax)

Fabrizio Ferri

Miami Business School ( email )

Coral Gables, FL 33146-6531
United States

Colleen Honigsberg

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305
United States

Randall S. Thomas (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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