Pandora's Ballot Box, or a Proxy With Moxie? Majority Voting, Corporate Ballot Access, and The Legend of Martin Lipton Re-Examined

Abstract

The Delaware General Assembly has recently adopted an amendment to the Delaware General Corporation Law (DGCL) which provides that where shareholders have adopted a majority voting bylaw for corporate elections over the traditional plurality scheme, a corporation may not subsequently amend its bylaws to return to plurality voting without shareholder approval. This article compares this provision to other approaches and attempts to explain the reasons underlying its adoption. The article also briefly summarizes the evolving shareholder empowerment debate and analyzes the majority voting provision in the context of that discussion. This article also describes some unique and unanticipated interactions between majority voting bylaws and various other working parts of corporation and securities laws affecting the shareholder franchise, a carefully protected right in Delaware jurisprudence. The most prevalent corporate strategies responding to this movement are explored and the difficulties of implementing majority voting are described. Finally, voting schemes from the political sphere are analyzed in an attempt to find analogous lessons for the corporate arena. The article ends with some predictions about future developments which will hinge on the outcome of SEC rules proposals, further DGCL revisions, and the responses of Delaware incorporated entities.

This article blends three distinct groups of thought: (i) theoretical corporate law scholarship and financial regulatory theory; (ii) interpretation of Delaware Court of Chancery cases; and (iii) practical analysis on the future of the majority voting movement and the strategic choices facing boards of directors in the aftermath of the Delaware amendments and corollary Securities and Exchange Commission and New York Stock Exchange regulatory initiatives. The result is a developed framework for how majority voting could serve to alter significantly the balance of power between shareholders and board members, with the magnitude of that effect contingent on the result of pending governance changes at forums, board responses, and the continuing evolution of the Delaware General Corporation Law. The presence of activist shareholders will be an especially important phenomenon affecting this analysis. The article also briefly explores one alternative to majority voting, the runoff election proposal, to allow that concept to enter into the debate. As a secondary thesis to the ideas summarized above, this article will also respond to Martin Lipton's latest article, The Many Myths of Lucian Bebchuk, which summarizes Lipton's views as the leading voice against the shareholder empowerment movement. This article will argue that, though there are many valid criticisms of the shareholder empowerment movement, Lipton's latest invective diatribe is bereft of them.

Keywords: ballot, Business Roundtable, California Corporation Code, Disney, empowering, for-cause, Joseph Grundfest, holdover, Mark Roe, MBCA, Michael Eisner, Model Business Corporation Act, proxy, supermajority, withhold vote

JEL Classification: G30, G38, D72