The Never-Ending Quest for Shareholder Rights: Special Meetings and Written Consent

New York University School of Law, Law & Economics Research Paper Series, Working Paper No. 18-37

Boston University Law Review, Vol. 99, No. 3, 2019

44 Pages Posted:

See all articles by Emiliano Catan

Emiliano Catan

New York University School of Law

Marcel Kahan

New York University School of Law; European Corporate Governance Institute

Date Written: November 1, 2018

Abstract

We study the evolution of shareholders’ rights to call special meetings and act by written consent from a functional and an empirical perspective. From a functional perspective, we show that these powers are most useful when they can be employed to gain a board majority and only useful if they can be employed at least to change the board composition. As a result, shareholders’ ability to act between annual meetings interacts with several other features of a firm’s governance structure: (1) the shareholders’ ability to remove directors without cause; (2) the shareholders’ ability to expand the board; (3) the shareholders’ ability to fill vacancies; and (4) the requirement of supermajority vote to do (1)-(3). From an empirical perspective, we construct a panel that follows firms in the S&P 500 index from 2005 to 2017 and hand-code for multiple features of their governance structure. We document a sizable increase in the number of firms that allow shareholders to act between annual meetings—but for a substantial fraction of the firms that allow shareholders to act between annual
meetings, we show shareholders cannot use that power to gain a board majority or change the board composition. We also document that precatory shareholder proposals were key drivers of the evolution of the ability to act between annual meetings among our sample firms and study how proponents select which firms to target. We conclude that proponents follow a “pecking order” strategy: they first push firms to declassify their boards, then push firms to allow shareholders
to call special meetings, and only then push firms to allow shareholders to act by written consent. However, we do not find evidence that proponents target those firms where a grant of ability to act between annual meetings would be most productive in light of the firm’s governance structure. Finally, we offer suggestive evidence that firms cannot appease shareholder proponents by caving into their pressure: proponents seem to be emboldened by firms’ earlier grants of shareholder rights to seek additional rights.

Keywords: Corporate Governance, Corporate Law, Takeovers, Shareholder Proposals, Special Meetings, Written Consent, Shareholder Rights

JEL Classification: K22

Suggested Citation

Catan, Emiliano and Kahan, Marcel, The Never-Ending Quest for Shareholder Rights: Special Meetings and Written Consent (November 1, 2018). New York University School of Law, Law & Economics Research Paper Series, Working Paper No. 18-37, Boston University Law Review, Vol. 99, No. 3, 2019, Available at SSRN: https://ssrn.com/abstract=

Emiliano Catan (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Marcel Kahan

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6268 (Phone)
212-995-4341 (Fax)

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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