The hanging chads of corporate voting

Georgetown Law Journal

Volumn 96, Issue 4, 2008, Pages 1227-1281

  Kahan, Marcel ^a   Rock, Edward ^b,c  

^a NEW YORK UNIVERSITY SCHOOL OF LAW   (United States)

^b Department of Law and Business ^*

^c UNIVERSITY OF PENNSYLVANIA LAW SCHOOL   (United States)

Author keywords

[No Author keywords available]

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EID: 44449089450     PISSN: 00168092     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (209)

1. E-mail from Edward B. Rock to Eileen Nugent, Skadden, Arps, Slate, Meagher & Flom LLP (May 21, 2007) (on file with author) (discussing Ms. Nugent's comment at an earlier roundtable discussion).
2. R. FRANKLIN BALOTTI ET AL., MEETINGS OF STOCKHOLDERS 7-23 (3d ed. 1996 & Supp. 2006).
3. Bob Drummond, Corporate Voting Charade, BLOOMBERG MARKETS, Apr. 2006, at 96, 96; Floyd Norris, Holders of MONY Approve $1.5 Billion Sale to AXA, N.Y. TIMES, May 19, 2004, at C5.
4. In re Appraisal of Transkaryotic Therapies, Inc., No. Civ.A. 1554-CC, 2007 WL 1378345, at *1 (Del. Ch. May 2, 2007).
5. Teresa F. Lindeman, Dissidents Join Heinz's Board, Both Sides Pledge Cooperation, PITTSBURGH POST-GAZETTE, Sept. 16, 2006, at A1;
6. Rick Stouffer, It's Official: Peltz, Weinstein on Heinz Board, PITTSBURGH TRIB. REV., Sept. 16, 2006 (stating that Peltz and Weinstein took the two seats as "part of a five-person slate put forth by the Peltz-led Trian Group").
7. See H.J. Heinz Co., Quarterly Report (Form 10-Q), at 33 (Nov. 1, 2006), available at http://www.sec.gov/Archives/edgar/data/46640/ 000095015206009785/233861ae10vq.htm (Our estimate is derived from the difference between the votes for Peltz - 136 million - and the votes of three board nominees that Peltz wanted to replace but that were elected - 128 million for Bunch, Drosdick, and Reilley.). It is likely that the board candidate with the next-lowest vote (who was not elected) had approximately the same votes as these three.
8. Drummond, supra note 3, at 102.
9. Kara Scannell, "Broker Votes": Opponents May Win One, WALL ST. J., June 13, 2007, at C1.
10. According to Yair Listokin, between 1997 and 2004, there were 714 "close votes" on proposals put to shareholders, where a vote is defined as "close" if the margin of victory or defeat is 10% or less. Yair Listokin, Management Always Wins the Close Ones 11, 14, 32 tbl.3 (John M. Olin Ctr. for Studies in Law, Econ., and Pub. Policy, Research Paper No. 348, 2007), available at http://ssrn.com/abstract=980695.
11. Drummond, supra note 3, at 102.
12. Roger Cheng & Amol Sharma, Verizon Holders Pass "Say-on-Pay" Plan, WALL ST. J., May 19, 2007, at A3. A preliminary tally at Verizon showed 49% for and 49% against, with the final outcome only determined after a "recount."
13. Kaja Whitehouse & Christopher Hinton, Verizon Shareholders May Get "Say on Pay," WALL ST. J., May 4, 2007, at B4.
14. Bush v. Gore, 531 U.S. 98, 100-01 (2000) (Florida division of elections reported a Bush margin of 1784 votes out of more man 5.8 million cast).
15. For a very recent set of materials relating to the proxy voting process and its infirmities, see Sec. & Exch. Comm'n, Briefing Paper: Roundtable on Proxy Voting Mechanics, http://www.sec.gov/spotlight/proxyprocess/ proxyvotingbrief.htm (last visited Jan. 25, 2008) [hereinafter SEC, Briefing Paper].
16. DEL. CODE ANN. tit. 8, §211(b) (2001); id. § 216 (Supp. 2006).
17. Id. § 216(3).
18. Delaware permits companies, for these and other matters, to adopt a higher approval threshold than the one provided by Delaware law. See id. § 216. Note that Delaware recently made changes to its statute regarding director elections. See id. § 141(b) (Supp. 2006) ("A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable."); id. § 216 ("A bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the board of directors.").
19. Id. § 109 (2001).
20. Id. § 216(2).
21. Id. § 251(c) (2001 & Supp. 2006) (mergers); id. § 271 (sale of all or substantially all assets); id. § 242(b) (2001) (charter amendments).
22. See, e.g., Kahn v. Lynch Commc'n Sys., Inc., 638 A.2d 1110, 1116-17 (Del. 1994).
23. NYSE, Inc., Listed Company Manual § 312.03(c) (2007).
24. I.R.C. § 162(m)(4)(C) (2000).
25. NYSE, Inc., Listed Company Manual § 303A.08 (2004); id. § 312.03(a) (2007).
26. NYSE Overview Statistics, http://www.nysedata.com/factbook (follow "NYSE Historical Statistics" hyperlink; then follow "NYSE overview statistics" hyperlink) (last visited Mar. 12, 2008).
27. DEL. CODE ANN. tit. 8, § 213 (2001).
28. Id. § 219 (2001).
29. Berlin v. Emerald Partners, 552 A.2d 482, 494 (Del. 1988); Schott v. Climax Molybdenum Co., 154 A.2d 221, 224 (Del. Ch. 1959).
30. DEL. CODE ANN. tit. 8, § 212(c) (2001).
31. Id. § 217(a).
32. 41 A.2d 583 (Del. 1945).
33. Id. at 589. This focus has continued. For example, in Enstar Corp. v. Senouf, 535 A.2d 1351, 1354-55 (Del. 1987), the Delaware Supreme Court reiterated this bright-line view: "In making that choice, the burden must be upon the stockholder to obtain the advantages of record ownership. The legal and practical effects of having one's stock registered in street name cannot be visited upon the issuer. The attendant risks are those of the stockholder, and where appropriate, the broker" (citing Lewis v. Corroon & Reynolds Corp., 57 A.2d 632, 634 (Del. Ch. 1948); Nickles v. United Nuclear Corp., 192 A.2d 628 (Del. Ch. 1963)). See also Am. Hardware Corp. v. Savage Arms Corp., 136 A.2d 690, 693 (Del. 1957); In re Giant Portland Cement Co., 21 A.2d 697 (Del. Ch. 1941).
34. Wim regard to appraisal rights, title 8, section 262(a) of the Delaware Code explicitly defines a stockholder entitled to appraisal as "a holder of record of stock in a stock corporation," thus making record ownership the key measure. DEL. CODE ANN. tit. 8, § 262(a) (2001). Accordingly, an appraisal action can only be brought by or on behalf of the record owner. Enstar Corp., 535 A.2d at 1356; Carl M. Loeb, Rhoades & Co. v. Hilton Hotels Corp., 222 A.2d 789, 792 (Del. 1966); Olivetti Underwood Corp. v. Jacques Coe & Co., 217 A.2d 683, 686 (Del. 1966); Coyne v. Schenley Indus., 155 A.2d 238, 240 (Del. 1959); Raynor v. LTV Aerospace Corp., 331 A.2d 393, 394 (Del. Ch. 1975); In re Gen. Realty Utils. Corp., 42 A.2d 24, 25 (Del. Ch. 1945); see also R. FRANKLIN BALOTTI & JESSE A. FINKELSTEIN, DELAWARE LAW OF CORPORATIONS AND BUSINESS ORGANIZATIONS §§ 9.43[B] and 44[F] (2007); RODMAN WARD, JR. ET AL., FOLK ON THE DELAWARE GENERAL CORPORATION LAW § 262.5 (15th ed. 2006 & Supp. Dec. 2007). This can work to the benefit of beneficial owners. In a recent case, In re Appraisal of Transkaryotic Therapies, Inc., the Delaware Chancery Court permitted hedge funds, which had acquired shares post record date, to pursue appraisal in reliance on the fact that the record holder (Cede & Co.) had a sufficient number of shares that had not been voted for the merger, without establishing that the shares that the hedge funds had acquired were themselves among the shares that qualified for appraisal. No. Civ.A. 1554-CC, 2007 WL 1378345, at *3 (Del. Ch. May 2, 2007). The Chancellor quite explicitiy noted that the effect of the ruling would be to allow arbitrageurs to "buy into appraisal suits by free-riding on Cede's votes on behalf of other beneficial holders," id. at *5, but held that the statute's focus on record holders dictated the outcome: "Only the record holder possesses and may perfect appraisal rights. The statute simply does not allow consideration of the beneficial owner in this context." Id. By contrast, the courts show more flexibility in other contexts. With regard to acting by consent under DGCL § 228, "[g]enerally[] only persons whose names appear on the stock ledger as stockholders or hold proxies from record holders are qualified to execute a written consent." WARD, supra, § 228.4 (also citing cases). On the other hand, Delaware courts have held that beneficial owners may execute the consent so long as they indicate who the record holder is and have the right to vote the shares. Olson v. Buffington, No. 8042, 1985 WL 11575, at *3 (Del. Ch. July 17, 1985). In the case of shareholder derivative suits, an equitable remedy, the Delaware statute does not specify whether record ownership is required and the courts have not generally required it. See, e.g., Gamble-Skogmo, Inc. v. Saks, 122 A.2d 120 (Del. 1956); Rosenthal v. Burry Biscuit Corp., 60 A.2d 106 (Del. Ch. 1948); BALOTTI & FINKELSTEIN, supra, § 13.10 ("An equitable owner of shares is considered a stockholder and may maintain a derivative action.") In litigation under DGCL § 225 (Contested Election of Directors; Proceedings to Determine Validity), both record holders and beneficial holders may bring suit. Rosenfield v. Standard Elec. Equip. Corp., 83 A.2d 843, 845 (Del. Ch. 1951). Federal securities law is even less focused on record ownership. Wim regard to shareholder proposals, Securities and Exchange Commission (SEC) rules provide that, in order for a shareholder holding in nominee name to put a proposal on the issuer's proxy statement, it must prove its eligibility either by submitting a written statement from the record holder verifying that the proponent, at the time the proposal was submitted, had held continuously for at least one year or, if it has filed 13Ds, 13Gs, or other SEC reports indicating ownership, by means of those filings. 17 C.F.R. § 240.14a-8 (2007). Under sections 10(b) and 16(b), suit can typically be brought by eitfier the beneficial or record owner. Securities Exchange Act of 1934, §§ 10(b), 16(b), 15 U.S.C. §§ 78j, 78p (2000); Blau v. Lamb, 314 F.2d 618, 620 (2d Cir. 1963).
35. DEL. CODE ANN. tit. 8, § 212(b) (2001).
36. Id. § 231.
37. See id. § 225 (providing the statutory basis for judicial review of contests).
38. BALOTTI ET AL., supra note 2, § 10.1.
39. Berlin v. Emerald Partners, 552 A.2d 482, 491 (Del. 1989).
40. Id.
41. DEL. CODE ANN. tit. 8, § 231(d) (2001). Of the sections referred to, § 211(e) permits electronic voting, § 212(c)(2) permits electronic transmission of proxies, and § 211(a)(2)(b)(i) permits participation by remote communication. These provisions were added in 2000.
42. 67 Del. Laws 810 (1990), cited in Seidman & Assocs., L.L.C. v. G.A. Fin., Inc., 837 A.2d 21, 27 n.14 (Del. Ch. 2003).
43. § 231(d) (emphasis added). Up until 1990, Delaware took an even narrower view on what materials may be considered. Under the doctrine of Williams v. Sterling Oil of Okla., 273 A.2d 264, 265-66 (Del. 1971), the inspector could not look to any extrinsic evidence at all. In 1989, in Concord Fin. Group v. Tri-State Motor Transit Co. of Del., 567 A.2d 1, 13 (Del. Ch. 1989), the Delaware Chancery Court reaffirmed the Williams court's refusal to consider extrinsic evidence and held that the inspector erred in considering extrinsic evidence of an obvious clerical error to resolve an outcome-determinative overvote. In response, in 1990, the Delaware legislature amended § 231 to provide the exception discussed in text. See 67 Del. Laws 810 (1990).
44. 837 A.2d 21 (Del. Ch. 2003).
45. Id. at 24, 28.
46. Exchange Act Release No. 38,406, 64 SEC Docket 231, at n.5 (Mar. 14, 1997).
47. Calculated from the NYSE Fact Book, http://www.nysedata.com/factbook (follow "Market Activity" hyperlink; then follow "Daily NYSE Group Volume in NYSE Listed" hyperlink) (last visited Nov. 9, 2007).
48. For a discussion of why investors prefer to hold shares in street name, see John C. Wilcox, John J. Purcell III & Hye-Won Choi, "Street Name" Registration & the Proxy Solicitation Process, in A PRACTICAL GUIDE TO SEC PROXY AND C OMPENSATION RULES 12-1, 12-3 to 12-4 (Amy L. Goodman & John F. Olsen eds., 3d ed. Supp. 2006).
49. See U.C.C. art. 8 prefatory note (amended 2003).
50. As described in the prefatory note to Uniform Commercial Code (U.C.C.) Article 8: Transfer of securities in the traditional certificate-based system was a complicated, labor-intensive process. Each time securities were traded, the physical certificates had to be delivered from the seller to the buyer, and in the case of registered securities the certificates had to be surrendered to the issuer or its transfer agent for registration of transfer. As is well known, the mechanical problems of processing the paperwork for securities transfers reached crisis proportions in the late 1960s, leading to calls for the elimination of the physical certificate and development of modern electronic systems for recording ownership of securities and transfers of ownership. Id.
51. See SEC. EXCH. COMM'N, FINAL REPORT ON THE PRACTICE OF RECORDING THE OWNERSHIP OF SECURITIES IN THE RECORDS OF THE ISSUER IN OTHER THAN THE NAME OF THE BENEFICIAL OWNER OF SUCH SECURITIES 9 (1976), microformed on CIS No. 76-H502-1 (Cong. Info. Serv.). The SEC's final report states: In Section 17A of the Act Congress directed the Commission to facilitate the establishment of a national system for the prompt and accurate clearance and settlement of securities transactions. The Commission believes that the practice of registering securities in other than the name of the beneficial owner is essential at this time to the establishment and refinement of such a system and is consistent with the purposes of the Act, with particular reference to Section 17A. Id. at 10; see also Concept Release: Securities Transactions Settlement, Securities Act Release No. 8398, Exchange Act Release No. 49,405, Investment Company Act Release No. 26,384, 82 SEC Docket 1198 (Mar. 11, 2004).
52. U.C.C. art. 8 prefatory note (amended 2003). Although there were once other depositories, DTC is now the sole U.S. depository institution.
53. Globalcustody.net Asset Tables, http://www.globalcustody.net/us/ custody_assets_domestic/ (last visited Nov. 8, 2007).
54. See Wilcox et al., supra note 46, at 12-9 n.24.
55. See id.
56. See id. at 12-9.
57. As will be discussed below, a securities loan is not really a loan but is a sale coupled with an obligation to return fungible shares.
58. Mark Faulkner, Pension Funds: Lending Message Fails To Get Through, EUROMONEY INSTITUTIONAL INVESTOR, Oct. 2001.
59. Press Release, Cal. Office of Pub. Affairs, CalPERS Approves Investment Contracts - Asset Allocation, Supplemental Savings, Securities Lending (June 19, 2006), available at http://www.calpers.ca.gov/index.jsp?bc=/about/press/ pr-2006/june/approves-investment-contracts.xml (last visited Nov. 8, 2007) [hereinafter CalPERS].
60. Letter from Ira D. Hammerman, Sec. Indus. Ass'n Senior Vice-President and General Counsel, to Jonathan G. Katz, Secretary, Sec. & Exch. Comm'n (Aug. 24, 2005), available at http://www.sifma.org/regulatory/comment_letters/ comment_letter_archives/7798.pdf.
61. See SEC, Briefing Paper, supra note 13.
62. See, e.g., Charles Schwab, Margin Application Agreement para. 8, http://www.schwab.com/cms/P-221808.14/COM25298-01-WB.pdf?cmsid= P-221808&refid=P [hereinafter Schwab Margin Agreement]. The Charles Schwab Margin Application's loan consent provision states: You agree that Securities and Other Property held in your margin account, now or in the future, may be borrowed (either separately or together with the property of others) by us (acting as principal) or by others. You agree that Schwab may receive and retain certain benefits (including, but not limited to, interest on collateral posted for such loans) to which you will not be entitled. You acknowledge that in certain circumstances, such borrowings could limit your ability to exercise voting rights or receive dividends, in whole or in part, with respect to the Securities and Other Property lent. You understand that for Securities and Other Property that are lent by Schwab, the dividends paid on such Securities and Other Property will go to the borrower. No compensation or other reimbursements will be due to you in connection with such borrowings. However, if you are allocated a substitute payment in lieu of dividends, you understand that such a payment may not be entitled to the same tax treatment as may have been applied to the receipt of a dividend. You agree that Schwab is not required to compensate you for any differential tax treatment between dividends and payments in lieu of dividends. Schwab may allocate payments in lieu of dividends by any mechanism permitted by law, including by using a lottery allocation system. Id.
63. U.C.C. § 8-102(a)(7) (amended 2003) ('"Entitlement holder' means a person identified in the records of a securities intermediary as the person having a security entitlement against the securities intermediary. If a person acquires a security entitlement by virtue of Section 8-501(b)(2) or (3), that person is the entitlement holder.").
64. "Financial assets" include shares. Id. § 8-102(a)(9).
65. Id. § 8-501(b)(1).
66. Id. § 8-501(c).
67. Id. § 8-503(c)-(e). Moreover, in order to prevent the shortfall of an intermediary's securities holdings from leading to the failure of securities trades - the minimization of such failures being the paramount goal of Article 8 - section 8-503(c) to (e) sharply limits the methods by which an entitlement holder may enforce its rights. These sections provide: (c) An entitlement holder's property interest with respect to a particular financial asset under subsection (a) may be enforced against the securities intermediary only by exercise of the entitlement holder's rights under Sections 8-505 through 8-508. (d) An entitlement holder's property interest with respect to a particular financial asset under subsection (a) may be enforced against a purchaser of the financial asset or interest therein only if: (1) insolvency proceedings have been initiated by or against the securities intermediary; (2) the securities intermediary does not have sufficient interests in the financial asset to satisfy the security entitlements of all of its entitlement holders to that financial asset; (3) the securities intermediary violated its obligations under Section 8-504 by transferring the financial asset or interest therein to the purchaser; and (4) the purchaser is not protected under subsection (e). The trustee or other liquidator, acting on behalf of all entitlement holders having security entitlements with respect to a particular financial asset, may recover the financial asset, or interest therein, from the purchaser. If the trustee or other liquidator elects not to pursue that right, an entitlement holder whose security entitlement remains unsatisfied has the right to recover its interest in the financial asset from the purchaser. (e) An action based on the entitlement holder's property interest with respect to a particular financial asset under subsection (a), whether framed in conversion, replevin, constructive trust, equitable lien, or other theory, may not be asserted against any purchaser of a financial asset or interest therein who gives value, obtains control, and does not act in collusion with the securities intermediary in violating the securities intermediary's obligations under Section 8-504. Id.
68. Id. § 8-511 (amended 2003).
69. Exchange Act Rule 17Ad-8(a), 17 C.F.R. § 240.17Ad-8(a) (2007). Depositories can charge for the cost of compliance. § 240.17Ad-8(b).
70. Letter from John C. Wilcox, Vice Chairman, Georgeson S'holder Commc'ns Inc., to the Sec. & Exch. Comm'n (Dec. 12, 2003), available at http://www.sec.gov/rules/proposed/s71903/georgeson121203.htm.
71. This is required under Exchange Act Rule 14a-13, 17 C.F.R. § 240.14a-13 (2007).
72. See Chris Kentouris, Swingvote Morphs into Full-Service Proxy Provider, SEC. INDUS. NEWS, Nov. 13, 2006, at 12; see also Broadridge Fin. Solutions, L.L.C., Amendment to Registration of Securities (Amend. 4 to Form 10), at 3, 65 (Mar. 16, 2007) [hereinafter Broadridge, Amend. 4 to Form 10].
73. 17 C.F.R. § 240.14b-1(b)(1) (2007).
74. Id. § 240.14b-2(b)(1)(i).
75. Id. § 240.14b-1(b)(1)(i).
76. See id. § 240.14b-1(b)(3) (brokers); id. § 240.14b-2(b)(4)(ii)(B) (banks).
77. Bus. Roundtable, Request for Rulemaking Concerning Shareholder Communications, Petition 4-493, Apr. 12, 2004, at n.2, http://www.sec.gov/rules/ petitions/peta4-493.htm (based on information from Automatic Data Processing, Inc.) [hereinafter Bus. Roundtable Petition].
78. 17 C.F.R. § 240.14b-1.
79. Id. § 240.14b-1(b)(2); id. § 240.14b-2(b)(3).
80. Id. § 240.14a-13(a)(5).
81. NYSE, Inc., Rule 465 Supplementary Material, available at http://rules.nyse.com/nysetools/Exchangeviewer.asp?SelectedNode= chp_1_2&manual=/nyse/nyse_rules/nyse-rules/; NASD, Inc., Rule 2260 Interpretive Material, available at http://finra.complinet.com/finra/ display/display.html?rbid=1189&element_id=1159000466.
82. 17 C.F.R. § 240.14b-2(c)(3).
83. Internet Availability of Proxy Materials, Exchange Act Release No. 55, 146, Investment Company Act Release No. 27,671, 72 Fed. Reg. 4138 (proposed Jan. 29, 2007).
84. See, e.g., Broadridge, Amend. 4 to Form 10, supra note 70, at 11. Broadridge's registration statement describes how the new model may affect its business: The adopted changes, and the proposed changes, if adopted, will have a significant effect on our business. For those companies that choose the notice and access option, we will continue to mail notices to those stockholders who have not elected to receive proxy materials electronically. Therefore, the volume of items to be mailed will most likely remain unchanged. However, the weight of the packages will be less, resulting in lower revenues per distribution. At the same time, some stockholders may elect to continue to receive paper copies of proxy materials. Certain of these mailings may not receive the benefit of volume discounts, resulting in higher revenues per distribution. We also anticipate deriving additional revenue from the fulfillment services that we expect to provide for individually ordered paper proxy materials and for the establishment of procedures such as toll-free numbers and websites to accommodate the requests of stockholders to receive paper proxy materials for up to one year after the conclusion of the meeting or corporate action to which the materials relate. Additionally, we may derive revenue from new services such as the creation of access notices and the creation and maintenance of a new database of stockholders requesting paper proxy materials. We do not at this time know how many companies will choose the notice and access option, nor do we know how many stockholders will elect to continue to receive paper copies of proxy materials. As a result, we cannot at this time predict the net effect of the SEC's new electronic access rules on our Investor Communication Solutions business. Id.
85. 17 C.F.R. § 240.14b-2(b)(2)(i).
86. Id. § 240.14b-1(b)(2) (for brokers); id. §240.14b-2(b)(3) (for banks); see BALOTTI ET AL., supra note 2, § 10.7; Wilcox et al., supra note 46, at 12-8 to 12-10.
87. See, e.g., Am. Stock Transfer & Trust Co., Shareholder Services, http://www.amstock.com/corporate/corporate_proxy.asp (last visited Oct. 24, 2007).
88. Automatic Data Processing, Inc., ADP Announces Voting Confirmation Program for 2007 Proxy Season, http://www.investquest.com/iq/a/adp/ne/news/bs/ adp011707.htm (last visited Dec. 30, 2007).
89. IVS Assocs., Inc., An Industry Leader in Independent Ballot Tabulation Services, http://www.ivsassociates.com/html/index2.htm (last visited Dec. 30, 2007).
90. There is no official figure of the number of public companies in the U.S., and estimates vary. For one estimate, see Thomas J. Donohue, President & CEO, U.S. Chamber of Commerce, Remarks at the Three Sector Summit - Hitachi Found. (July 14, 2003), available at http://www.uschamber.com/ press/speeches/2003/030714tjd_hitachi.htm.
91. Some companies are reporting companies under section 15(d) of the Securities Exchange Act, 15 U.S.C. § 78o(d) (2000), without also being registered under section 12, 15 U.S.C. § 781(a) (2000), such as privately held companies with public debt. Id. §§ 781, 78o(d). Those companies are subject to part of the mandatory disclosure system (for example, Rule 15d-1, 17 C.F.R. § 240.15d-1 (2007), requires that annual reports be filed), but are not subject to the proxy rules that only apply to companies registered under section 12 of the Act. Securities Exchange Act § 14(a), 15 U.S.C. § 78n(a) (2000).
92. Broadridge, Amend. 4 to Form 10, supra note 70, at 46.
93. Id. at 3.
94. NYSE, Inc., Rule 451 (Mar. 6, 2003); NYSE, Inc., Rule 452 (Mar. 6, 2003). Rule 452 states: [A] member organization . . . may give or authorize the giving of a proxy to voted such stock, provided the person in the member organization giving or authorizing the giving of the proxy has no knowledge of any contest as to the action to be taken at the meeting and provided such action is adequately disclosed to stockholders and does not include authorization for a merger, consolidation or any other matter which may affect substantially the rights or privileges of such stock. Id. Under Rule 452.11(2), contests are defined to be matters which are "the subject of a counter-solicitation, or [] part of a proposal made by a stockholder which is being opposed by management (i.e., a contest)." For more on the broker non-vote, see Wilcox et al., supra note 46, at 12-8 to 12-9.
95. Scannell, supra note 8 ("Brokers generally vote for management, partly, they say, because if clients wanted them to oppose management they would let mem know.").
96. Note, however, that the universe of "routine" matters may soon shrink. In June 2006, a NYSE Working Group recommended that the rule be modified to make clear that uncontested directorial elections should no longer be deemed routine, effective 2008. REPORT AND RECOMMENDATIONS OF THE PROXY WORKING GROUP TO THE NEW YORK STOCK EXCHANGE 3 (2006), available at http://www.nyse.com/pdfs/PWG_REPORT.pdf. But, because the SEC has not yet acted, the change will not be effective for the 2008 proxy season.
97. See Janet L. Fisher & Mary E. Alcock, Voting at Annual Meetings, CORP. GOVERNANCE, Nov. 2007, at 2;
98. Elizabeth Hinck, United States: What's New for the 2008 Proxy Season, MONDAQ BUS. BRIEFING, Nov. 27, 2007.
99. See Wilcox et al., supra note 46, at 12-9 to 12-10.
100. The default quorum requirement is set at 50%, but it can be lowered by a charter provision to as littie as 33.3%. DEL. CODE ANN. tit. 8, § 216 (2001 & Supp. 2006).
101. Id. § 251(c).
102. Id. § 242(b).
103. Wilcox et al., supra note 46, at 12-11 to 12-12.
104. DEL CODE ANN. tit. 8, § 216 (2001 & Supp. 2006).
105. The following is based on a confidential personal communication with one of the authors.
106. The law governing the appointment and role of inspectors is surprisingly sparse. Title 8, section 231 of the Delaware Code requires that inspectors be appointed in advance of all meetings of publicly held corporations and gives them the responsibility for ascertaining the number of shares outstanding, determining the shares represented at the meeting and the validity of proxies counting votes and ballots, and certifying their determination of the number of shares represented and the count. DEL. CODE ANN. tit. 8, § 231(a)-(c) (2001). Section 231 further provides: The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. Id. § 231(c). Typically, the polls are opened officially during the meeting to receive proxies and ballots (from those shareholders present). BALOTTI ET AL., supra note 2, § 8.12. The official closing of the polls is more complicated. "In a simple, uncontested meeting . . . , the results of any vote often may be tabulated and announced without any adjournment of the meeting." Id. On the other hand, when a vote is close, the polls can be kept open while the company's proxy solicitor works to find more votes. This discretion likely explains Listokin's finding that management is overwhelmingly likely to win close contests. See Listokin, supra note 9, at 1; see also discussion supra note 9 and accompanying text. If, at the beginning of a meeting, management is short votes, the polls can be held open while the solicitors continue soliciting votes. The situation is more complicated when a meeting is adjourned (for example, for thirty days) in order to allow management to round up additional votes for a specific matter. In State of Wisconsin Investment Board (SWIB) v. Peerless Systems Corp., the Chancery Court considered such a situation under a Blasius analysis, No. Civ. A. 17637, 2000 WL 805376, *3-4, *7-8, *19 (Del. Ch. Dec. 4, 2000) (discussing Blasius Indus, v. Atlas Corp., 564 A.2d 651 (1998)), and while not granting summary judgment for SWIB, was extremely skeptical of whether Peerless could sustain its burden of establishing a "compelling justification" for interfering with the shareholders' franchise. Id.
107. Steven Brull, The Best-Laid Plans . . . , INSTITUTIONAL INVESTOR AMERICAS, Feb. 2004, at 38.
108. Dale A. Oesterle & Alan R. Palmiter, Judicial Schizophrenia in Shareholder Voting Cases, 79 IOWA L. REV. 485, 510-11 (1994) (footnotes omitted).
109. BALOTTI ET AL., supra note 2, § 10.7.
110. Id.
111. Id.
112. Id.
113. Id. § 10.8. In these cases, the inspector contacts the proxy clerk to resolve the overvote, as permitted by title 28, section 231 of the Delaware Code. See DEL. CODE ANN. tit. 8, § 231 (2001). "Some firms cooperate with the inspectors when they overvote; others refuse to change their vote, maintaining that they hold the number of shares they voted . . . . Any broker or bank proxies that cannot be resolved by telephone are not counted, but reported as unresolved." BALOTTI ET AL., supra note 2, § 10.8.
114. BALOTTI ET AL., supra note 2, § 10.8.
115. See supra text accompanying notes 52-54.
116. BALOTTI ET AL., supra note 2, § 10.8.
117. John C. Wilcox, Shareholder Nominations of Corporate Directors: Unintended Consequences and the Case for Reform of the U.S. Proxy System, in SHAREHOLDER ACCESS TO THE CORPORATE BALLOT 6 (Lucian A. Bebchuk ed., 2004).
118. Id. at 7.
119. Confidential Communication to author.
120. 17 C.F.R. § 240.14a-8 (2007).
121. 17 C.F.R. § 242.203 (2007).
122. BOND MKT. ASS'N, MASTER REPURCHASE AGREEMENT (1996), available at http://archives1.sifma.org/agrees/master_repo_agreement.pdf. Annex VIII governs the "lending" of equity securities. See BOND MKT. ASS'N, ANNEX VIII: TRANSACTIONS IN EQUITY SECURITIES (1998), available at http://archives1.sifma.org/agrees/equityannex.pdf [hereinafter ANNEX VIII].
123. See ANNEX VIII, supra note 118, para. 4(a).
124. With regard to ERISA fiduciaries, the Department of Labor addressed the fiduciary's duties in a 1992 letter in which it concluded that "'potential inability to vote on proxy proposals that may arise while the loan is outstanding . . . should be considered by a fiduciary as part of the decision to loan shares of stock.'" Wilcox et al., supra note 46, at 12-19 (alteration to the original in the quoted text) (quoting Letter from Ivan L. Strasfeld to James E. Heard dated Feb. 20, 1992). Wilcox et al. report that "[t]he DOL's letter has been interpreted as requiring ERISA fiduciaries to have some system in place to ensure they are in physical possession of shares on the record date for meetings at which significant proposals are being considered." Id.
125. Annex VIII provides: "Except as otherwise agreed by the parties, Seller waives the right to vote, or to provide any consent or to take any similar action with respect to, Purchased Securities that are Equity Securities in the event that the record date or deadline for such vote, consent or other action falls during the term of a Transaction." ANNEX VIII, supra note 118, para. 7.
126. According to a 2004 survey, the total securities lending volume with all U.S. counterparties is estimated to be approximately $1.94 trillion. BOND MKT ASS'N, REPO & SECURITIES LENDING SURVEY OF U.S. MARKETS VOLUME AND LOSS EXPERIENCE 3 (2005), available at http://www.sifma.net/assets/files/repoSurvey0105.pdf (last visited Mar. 17, 2008). Of that, about $275 billion comes from margin accounts. Id.
127. Faulkner, supra note 56.
128. CalPERS, supra note 57.
129. Nor can the securities lender solve the problem by retaining the vote by securing a proxy from the record holder. The borrower may want to sell the shares prior to the record date in the public market. Requiring the anonymous purchaser of these shares to execute a proxy is impracticable.
130. Under New York Stock Exchange rules, the issuer must announce the record date ten days in advance. NYSE, Inc., Listed Company Manual § 204.21 (2006). Under title 8, section 213 of the Delaware Code, the board of directors must fix the record date between ten and sixty days before the meeting and not before the date of the board resolution. DEL. CODE ANN. tit. 8, § 213 (2001).
131. These problems, of course, can be lessened to the extent that proponents of shareholder proposals publicize their intention to make a proposal well in advance of the meeting. In proxy contests, however, the challengers may not want to provide that warning.
132. See RANDALL S. THOMAS & CATHERINE T. DIXON, ARANOW & EINHORN ON PROXY CONTESTS FOR CORPORATE CONTROL § 15.05[C] (3d ed. 1998 & Supp. 1999); see also BALOTTI ET AL., supra note 2, § 10.7; Henry T.C. Hu & Bernard Black, Empty Voting and Hidden (Morphable) Ownership: Taxonomy, Implications, and Reforms, 61 BUS. LAW. 1011 (2006) (discussing issues of overvoting).
133. Schwab Margin Agreement, supra note 60, para. 8.
134. This happened, for example, in Seidman & Assocs., L.L.C. v. G.A. Fin., Inc., 837 A.2d 21, 24-25, 28 (Del. Ch. 2003) (invalidating proxies for 233,376 shares when unable to resolve an 824-share overvote). When there is no reconciliation, mere is no standard industry practice for what the tabulator should do. As the NYSE pointed out: "Tabulators may respond to over-votes with a variety of vote-counting procedures, including counting votes on a first in-first voted or last in-first voted basis, or disregarding altogether a vote submitted by a broker dealer." In re Deutsche Bank Securities Inc., NYSE Decision 05-45, para. 11 (Feb. 2, 2006).
135. The New York Stock Exchange is aware of, and worried about, this problem. NYSE, Inc., Information Memo No. 04-58, Suspension of Proxy Activities and Over-Voting (Nov. 5, 2004).
136. E-mail from Edward B. Rock to John Wilcox (Oct. 10, 2007) (on file with author). In votes at annual meetings not involving a contest, Broadridge typically resolves overvotes through an internal reconciliation process. Id.
137. In re Deutsche Bank Securities, Inc., NYSE Decision 0545, para. 6 (Feb. 2, 2006).
138. Id. at paras. 26-28.
139. The SIA recently merged with the Bond Market Association to become The Securities Industry and Financial Markets Association (SIFMA). See Welcome to SIFMA.org, http://www.sifma.org/about/about.html (last visited Jan. 25, 2008).
140. Letter from Donald Kittel, Executive Vice President, Sec. Indus. Assoc., to Anand Ramtahal, Vice President of Member Firm Regulation, NYSE (Apr. 26, 2005) [hereinafter SIA Letter], available at http://www.sifma.org/ regulatory/comment_letters/comment_letter_archives/6136.pdf; see also SEC. INDUS. ASSOC., PROXY SUGGESTED PRACTICES (2006), available at http://www.sifma.org/services/ techops/pdf/ProxyGuidelinesSep2006.pdf [hereinafter SIA, PROXY PRACTICES].
141. Broadridge provides a service (the "Over Reporting Prevention Service") that compares "a participant's reported position to its DTC
142. The NYSE appears to permit the practice of assigning voting instructions to shares with respect to which voting instructions have not been received, so long as there is no "overvote" - in other words, the votes do not exceed the shares in the broker's possession on the record date. Wilcox et al., supra note 46, at 12-20 (citing Letter from the NYSE to the Commerce, Consumer & Monetary Affairs Subcomm. of the Comm. on Gov't Relations (Feb. 19, 1991)).
143. SIA Letter, supra note 136, at 3; see SIA, PROXY PRACTICES, supra note 136, at 3 n.7.
144. SIA, PROXY PRACTICES, supra note 136, at 3.
145. The pre-mailing proration approach is consistent with the U.C.C. article 8 structure of property rights. U.C.C. section 8-503(b), provides that when the broker does not have enough shares to cover all of the securities entitlements: An entitlement holder's property interest with respect to a particular financial asset under subsection (a) is a pro rata property interest in all interests in that financial asset held by the securities intermediary, without regard to the time the entitlement holder acquired the security entitlement or the time the securities intermediary acquired the interest in that financial asset. U.C.C. § 8-503(b) (amended 2003). However, because U.C.C. article 8 is designed to govern custodial arrangements and to minimize failed securities transactions, it is not clear whether it should be viewed as a source for more-general obligations between brokers and customers. Thus, we do not mean to suggest that the pre-mailing proration approach is required by the U.C.C.
146. Drummond, supra note 3, at 96; Floyd Norris, Holders of MONY Approve $1.5 Billion Sale to AXA, N.Y. TIMES, May 19, 2004, at C4.
147. Hu & Black, supra note 128, at 1011, 1024-37; Henry T.C. Hu & Bernard Black, The New Vote Buying: Empty Voting and Hidden (Morphable) Ownership, 79 S. CAL. L. REV. 811, 812 (2006).
148. Eric D. Roiter, Senior Vice President and General Counsel of Fidelity Management and Research Co., Remarks at the Columbia Law School Conference: Shareholder Democracy: Its Promises and Perils (Nov. 18, 2005).
149. As discussed earlier, Delaware focuses on record ownership. See supra text accompanying notes 24-32. In two cases, Chancellor William T. Allen suggested some equitable limits to voting such shares. In Commonwealth Associates v. Providence Health Care, Inc., Chancellor Allen presumed that a post-record-date sale of shares would carry with it the right to vote the shares. 641 A.2d 155, 155-58 (Del. Ch. 1993). Indeed, he suggested that any contractual agreement to permit the selling shareholder to retain the votes without also retaining "an interest sufficient to support the granting of an irrevocable proxy with respect to the shares" would not be enforceable. Id. at 158. In an earlier opinion, Chancellor Allen stated: [T]he 'seller' of stock loses the equitable interest once a specifically enforceable contract of sale is formed. It is the binding nature of this contract and its specific enforceability under the law that gives to the "buyer" the present equitable right as it may be deemed to have, such as the right to compel a proxy from the registered owner or, more directly, to have its vote counted by the court in an election contest. Len v. Fuller, No. Civ. A. 15352, 1997 WL 305833, at *3 (Del. Ch. May 30, 1997). Neither opinion, however, bars empty voting and, in impersonal markets, the post-record-date buyer will not be able to execute a proxy.
150. For example, counterparties in swap transactions, typically banks, may look to the holder of the economic interest to get a "wink or a nod" on how to vote. Andrew Ross Sorkin, A Loophole Lets a Foot in the Door, N.Y. TIMES, Jan. 15, 2008, at C01.
151. Roiter, supra note 144.
152. Hu & Black, supra note 128, at 1014.
153. Shaun Martin & Frank Partnoy, Encumbered Shares, 2005 U. ILL. L. REV. 775 (2005).
154. Hu & Black, supra note 128, at 1014.
155. The market for record-date ownership is described and discussed in Susan E.K. Christoffersen et al., Vote Trading and Information Aggregation, 62 J. FIN. 2897 (2007),
156. and in Christopher C. Geczy et al., Stocks Are Special Too: An Analysis of the Equity Lending Market, 66 J. FIN. ECON. 241 (2002). The issues relating to empty voting are extensively discussed in Martin & Partnoy, supra note 149, and in Hu & Black, supra note 128.
157. See Robert Steyer, Mylan and Icahn Turn Up the Volume, THESTREET.COM, Dec. 22, 2004, http://www.thestreet.com/_yahoo/ stocks/robertsteyer/10200481.html.
158. See Robert Steyer, New Player Joins Mylan-King Fray, THESTREET.COM, Nov. 29, 2004, http://www.thestreet.com/_yahoo/ stocks/robertsteyer/10196467.html.
159. See id.
160. See id.
161. See Steyer, supra note 152.
162. Icahn Wins as Mylan, King Deal Dies, FORBES.COM, Mar. 4, 2005, http://www.forbes.com/2005/03/04/cx_gl_0304faceweek_print.html.
163. Other, more-traditional conflicts of interest in voting were also present. Icahn had a stake of about ten percent in Mylan, both in terms of economic exposure and in terms of voting rights. But Icahn also had shorted 5.3 million shares of King stock. Id. Icahn could thus have an economic interest to oppose the merger, even if the merger were in the interest of Mylan, as long as the market thought that the merger would be significantly more beneficial to King. In that event, Icahn would gain more from a defeat of the merger through his short position in King than he lost on account of his long position in Mylan. For example, suppose Icahn shorted the King shares at $30 per share, so that the shares would go up to $40 per share if the merger was completed but down to $20 per share if the merger failed. Icahn would then profit from defeating the merger if his profits from shorting were greater than the increase in the value of his Mylan stake from approving the merger.
164. Vote buying traditionally involves an acquisition of votes without an acquisition of an economic stake. Empty voting typically involves an acquisition of shares - vote plus stake - and a separate transaction to divest the economic stake.
165. Empty voting also results in investors who have an economic interest but no voting rights. As to them, the analysis is the same as for incidental discrepancies.
166. Discussed infra section IV.B.
167. Discussed infra section IV.C.
168. 17 C.F.R. § 240.14a-8 (2007).
169. This, however, will not be the case where votes are not counted (Pathology 2). Also, with respect to incidental discrepancies (Pathology 6), the anti-management effect of fewer shares with effective votes for director election may be made up by a possible tendency of record owners without economic stakes to vote in favor of management's nominees.
170. The company may, at that point, not know which shareholder proposals will be on the agenda. But with respect to shareholder proposals, shareholder activists can announce well in advance of a meeting that they intend to pursue some issues. This, in theory, provides an opportunity for fellow shareholders to recall their shares.
171. Confidential oral communication to author.
172. Bus. Roundtable Petition, supra note 75; Letter from John C. Wilcox, Vice Chairman, Georgeson Shareholder Communications, Inc., to the Sec. & Exch. Comm'n (Apr. 12, 2004), available at http://www.sec.gov/ rules/proposed/s71903/gshareholder041204.pdf; see Letter from John C. Wilcox, Vice Chairman, Georgeson Shareholder Communications, Inc., to Johnathan Katz, Sec'y, Sec. & Exch. Comm'n (May 3, 2004), available at http://www.sec.gov/rules/petitions/4-493/georgeson050304.pdf; see also Wilcox, supra note 113, at 9-11.
173. See Wilcox, supra note 113, at 10.
174. See id.
175. See id.
176. Id.
177. As a result, the proposal would eliminate "broker non-votes."
178. On the other hand, tax considerations may force this identification because of the IRS's position that payments in lieu of dividends are not entitled to privileged tax treatment. I.R.S. Notice 2003-67, 2003-2 C.B. 752 (The Jobs and Growth Tax Relief Reconciliation Act of 2003 - Information Reporting for Payments in Lieu of Dividends).
179. Letter from Donald D. Kittell, Executive Vice President, Sec. Indus. Ass'n, to Johnathan G. Katz, Sec'y, SEC (June 24, 2004), available at http://www.sia.com/2004_comment_letters/pdf/30454888.pdf (writing in opposition).
180. UNIDROIT (the International Institute for the Unification of Private Law) is currently developing a legal framework for the cross-border clearing and settlement of intermediated securities with the goal of producing a convention that will be adopted by states. UNIDROIT, Substantive Rules Regarding Intermediated Securities (Study 78), available at http://www.unidroit.org/english/workprogramme/study078/item1/overview.htm (last visited Jan. 2, 2008).
181. The working papers, available at the UNIDROIT Study 78 website, provide a wealth of information on the different systems of indirect ownership of securities in different countries. UNIDROIT, Intermediated Securities, Study LXXVIII, http://www.unidroit.org/english/workprogramme/study078/item1/main.htm (last visited Jan. 2, 2008).
182. In the SEC's 1976 report on nominee ownership, the SEC recognized the trade-off between incremental and fundamental reform. See SEC, SEC STREET NAME STUDY: FINAL REPORT TO CONGRESS, NO. 672. One potential reform considered was termed the "transfer agent depository concept" which "would replace the certificate with computerized stockowner lists, maintained by the transfer agent, which would serve as both the issuer's stock records and the shareowner's evidence of ownership." Id. at 60. But the SEC did not embrace the proposal, noting: The Commission has concluded that no alternative approach would facilitate shareowner communications without disrupting the current system of clearance and settlement, imposing significant costs and recordkeeping requirements on participants, or involving major computer development . . . . The [transfer agent depository] concept exhibits promise as an important long-term alternative. It is not, however, a system for streamlining communications but rather an approach to a national clearance and settlement system which, as a by-product, would improve issuer-shareowner communications. Id. at 62.
183. The description of the "Spanish" model in the text is somewhat simplified in order to focus attention on its role in simplifying corporate voting, and therefore ignores the important issues of clearing and settlement. For an overview and descriptions of different types of systems of indirect holding, see UNIDROIT, WORKING PAPER REGARDING SO CALLED "TRANSPARENT SYSTEMS" (2006), available at http://www.unidroit.org/english/publications/ proceedings/2006/study/78/s-78-44-e.pdf [hereinafter UNIDROIT, TRANSPARENT SYSTEMS 2006] and UNIDROIT, SUPPLEMENTARY WORKING PAPER REGARDING SO-CALLED "TRANSPARENT SYSTEMS" (2007), available at http://www.unidroit.org/enghsh/publications/proceedings/2007/study/78/ s-78-44add-e.pdf.
184. EUROPEAN COMM'N, FINANCIAL MARKETS INFRASTRUCTURE: EU CLEARING AND SETTLEMENT, LEGAL CERTAINTY GROUP, QUESTIONNAIRE, HORIZONTAL ANSWERS para. 1.7.15 (2005), available at http://ec.europa.eu/internal_market/financial-markets/docs/certainty/background/ comparative_survey _en.pdf; see also UNIDROIT, TRANSPARENT SYSTEMS 2006, supra note 177, at 6-7.
185. IBERCLEAR Home Page, http://www.iberclear.com/Iberclear/home/home.htm (last visited Jan. 2, 2008).
186. EUROPEAN COMM'N, supra note 178, at para. 2.7.2.
187. Id.
188. Id.
189. Id.; see also id. para. 7.7. Under Article 9 of the Spanish Securities Markets Act, "Transfer of book-entry securities takes place by means of account transfer. The inscription of the transfer in favour of the acquirer will produce the same legal effects [as] the delivery of the physical securities." Id. para. 2.7.2. (providing English translation).
190. Id. para. 2.7.2. The European Commission's comparative survey describes Spanish law on the subject: According to article 10 of the Securities markets law, "The creation of limited rights in rem or liens of any other kind on securities represented by book-entry shall be recorded on the corresponding account. (. . .). The creation of the lien is valid vis-à-vis third parties from the time the corresponding entry is recorded["]. And article 9 of the same Law foresees: "A third party purchasing for consideration securities represented by book entry from a person who was legitimately entitled to transfer such securities according to the book entry records shall not be subject to any claim (reivindicatio) unless said third party acted in bad faith or with gross negligence at the time of purchase." Id. para. 11.7 (quoting the Spanish Securities Markets Act).
191. Id. paras. 17.7, 19.7, 20.7, 21.7, 55.7.
192. Although the U.S. system (according to which the shares sold by Morgan Stanley customers to JP Morgan customers are netted at the end of each day against the shares sold by JP Morgan customers to Morgan Stanley customers) had some advantages prior to the evolution of modern information processing, the costs of not being able to trace particular transfers can be significant.
193. EUROPEAN COMM'N, supra note 178, para. 21.7.
194. Id. para. 11.7.
195. Id. para. 5.7.
196. Id. para. 34.7.
197. Id. para. 34.7.1.
198. In Spain, IBERCLEAR certifies to the issuer how the securities are distributed among the participants in the system. Id. para. 36.7. Then, for voting, the issuer sends an "attendance card" to the investor. Id. para. 34.7.1. Since 2003, issuers have been obliged to provide for "distance voting" through mail or electronic means. Id.
199. Art. CIV of the Public Companies Act.
200. Id. para. 36.7.
201. It thus could solve one version of empty voting (record-date capture), but not other versions (for example, hedging while retaining ownership).
202. Note how securities "lending" occurs in this system. Because securities "lending" is really a transfer of a security subject to an obligation to retransfer an equivalent security later, the securities "loan" itself would be recorded on the registry as a transfer (with the "return" similarly recorded). Thus, the system forces an attribution of "lent" shares to specific accounts, with notice to the account holder, while also ensuring that no more than 100% of the shares appear. Because each securities loan involves an actual recorded transfer of shares on the registry, the cost of securities lending may increase, as intermediaries will not be able to lend securities out of the "float" - the aggregate of shares which are unlikely to be sold during a given period.
203. U.C.C. art. 8 prefatory note (amended 2003).
204. Delaware, for example, provides: The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. DEL. CODE ANN. tit. 8, § 158 (Supp. 2006).
205. U.C.C. art. 8 prefatory note.
206. EUROPEAN COMM'N, supra note 178, para. 35.7.
207. Gilchrist Sparks III, Partner, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware, Personal Oral Communication to Author.
208. Ronald J. Gilson & Alan Schwartz, Sales and Elections as Methods for Transferring Corporate Control, 2 THEORETICAL INQUIRIES L. 783, 787-88 (2001).
209. DEL. CODE ANN. tit. 8, § 216(3) (Supp. 2006).