The future of shareholder democracy

Indiana Law Journal

Volumn 84, Issue 4, 2009, Pages 1259-1308

  Fairfax, Lisa M ^a,b  

^a Law ^*

^b UNIVERSITY OF MARYLAND SCHOOL OF LAW   (United States)

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[No Author keywords available]

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EID: 70349131977     PISSN: 00196665     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (466)

1. See Thomas W. Joo, Comment: Corporate Governance andthe "D-Word", 63 WASH. & LEE L. REV. 1579, 1587 (2006);
2. Usha Rodrigues, The Seductive Comparison of Shareholder and Civic Democracy, 63 WASH. & LEE L. REV. 1389, 1390 (2006).
3. But see Dalia Tsuk Mitchell, Shareholders as Proxies: The Contours of Shareholder Democracy, 63 WASH. & LEE L. REV. 1503, 1509-10 (2006) (explaining competing conception of shareholder democracy).
4. As this Article was going to press, Delaware's governor signed into law Delaware House Bill No. 19, which amends the Delaware General Corporation Law by adding a new section 112 providing, among other things, that a corporation may adopt (but is not required to adopt) a bylaw allowing individuals nominated by stockholders to be included on the corporation's proxy statement, and that the corporation may subject such inclusion to any lawful procedures and conditions.
5. See H.B. 19, 145th Gen. Assem, Reg. Sess. (Del. 2009)
6. This new section makes clear that Delaware corporations can include a proxy access provision in thenbylaws, though it falls short of requiring proxy access.
7. See id.
8. See Securities Exchange Act of 1934 Rule 14a-3,17 C.F.R. § 240.14a-3 (2007). The proxy statement is a statement containing information about the candidates to be voted on.
9. See Karey Wutkowski, SEC to Look Outside Ballot on Proxy Access, REUTERS, Jan. 4, 2008,http://www.reuters.com/articlePrint?articleId=USN1741224720080104.
10. See Securities Exchange Act of 1934 Rule 14a-8,17 C.F.R. §240.14a-8(i)(8) (2007) (providing exclusions for shareholder proposals related to election of directors).
11. See infra Part IIA (describing historical efforts to gain access to the proxy statement).
12. See Shareholder Proposals Relating to the Election of Directors, Exchange Art Release No. 56,914,
13. Investment Company Act Release No. 28, 075, 72 Fed. Reg. 70, 450, 70, 453 (Dec. 11, 2007) [hereinafter 2007 Final Shareholder Proposal Rule] .
14. See, e.g., Wutkowski, supra note 4 (quoting former SEC Chairman Harvey Pitt).
15. For a debate regarding the propriety of increasing shareholder power,
16. see Stephen Bainbridge, Director Primacy and Shareholder Dbempowerment, 119 HARV. L. REV. 1735, 1746 (2005) [hereinafter Bainbridge, Director Primacy];
17. Stephen Bainbridge, The Case for Limited Shareholder Voting Rights, 53 UCLAL. REV. 601, 624 (2006) [hereinafter Bainbridge, Shareholder Voting Rights];
18. Lucian Arye Bebchuk, The Case for Increasing Shareholder Power, 118 HARV. L. REV. 833, 851 (2005).
19. For a discussion of shareholders' historical role in the corporation,
20. see Mitchell, supra note 1.
21. This Article does not seek to address the normative question of whether increasing shareholder power is appropriate. Instead, this Article presumes the propriety ofthat increase, and focuses on the best mechanism for achieving it.
22. See Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 659 (Del. Ch. 1988);
23. Bebchuk, supra note 9, at 851 ;
24. Julian Velasco, Taking Shareholder Rights Seriously, 41 U.C. DAVIS L. REV. 605, 607 (2007).
25. Shareholders have the power to bring suit against directors for breaching their duty owed to shareholders and the corporation. See, e.g., MODEL Bus. CORP. ACT, ch. 7, subch. D (2007) (describing derivative proceedings). However, there are significant procedural and substantive hurdles to such suits that may impair the ability ofthat power to ensure managerial accountability.
26. See James D. Cox, Searching for the Corporation's Voice in Derivative Suit Litigation: A Critique of Zapata & the ALI Project, 1982 DUKE L.J. 959, 960;
27. Daniel R. Fischel & Michael Bradley, The Role of Liability Rules and the Derivative Suit in Corporate Law: A Theoretical and Empirical Analysb, 71 CORNELL L. REV. 261, 286 (1986) (noting that the overall effect of the legal rules regarding derivative suits is to deemphasize the role of liability rules in conforming managerial behavior);
28. Donald E. Schwartz, In Prabe of Derivative Suits: A Commentary on the Paper of Professors Fbchel and Bradley, 71 CORNELL L. REV. 322, 339-40 (1986).
29. Shareholders also have the right to sell their shares. This so-called exit right has been viewed by some as particularly important because it facilitates the market for corporate control by enabling the displacement of poorly performing managers.
30. See ROBERT C. CLARK, CORPORATE LAW 95 (1986). However, scholars have pointed out that the market for corporate control is imperfect.
31. See John Coffee, Regulating the Market for Corporate Control: A Critical Assessment of the Tender Offer's Role in Corporate Governance, 84 COLUM. L. REV. 1145, 1211-12 (1984) (noting that even when shareholders sell their shares and attendant voting rights, management often remains in power after the takeover);
32. James D. Cox, Compensation, Deterrence and the Market as Boundaries for Derivative Suit Procedures, 52 GEO. WASH. L. REV. 745, 752-53 (1984) (noting that while hostile takeovers may be effective for grossly abusive management, derivative suits are the only real means to deal with single breaches of fiduciary duty).
33. See Blasius, 564 A.2d at 659 (noting that the shareholder voting right represents a critical underpinning of corporate power);
34. Stokes v. Cont'l Trust Co., 78 N.E. 1090,1093 (N. Y. 1906) (noting that shareholders' power to vote is vital).
35. These fundamental transactions include approving amendments to the corporation's charter and approving mergers, major asset sales, and dissolutions.
36. See, e.g., DEL. CODE ANN. tit. 8, §§242 (amendments to certificate of incorporation), 251 (mergers), 271 (sale of assets), 275(c) (dissolutions) (2007);
37. MODEL Bus. CORP. ACT §§ 10.03(b) (articles of incorporation), 11.04(b) (mergers), 12.02(a) (disposition of assets), 14.02(e) (dissolution) (2007).
38. See DEL. CODE ANN. tit. 8, §141 (2007) (requiring corporations to be managed by or under the direction of the board of directors);
39. MODEL BUS. CORP. ACT §8.01(b) (2007).
40. See McQuade v. Stoneham, 189 N.E. 234, 236 (N.Y. 1934) (prohibiting shareholders from making agreements to elect officers and to interfere with discretion of board).
41. See id.
42. See Bebchuk, supra note 9, at 851.
43. Corporate scholars refer to this divergence as an agency problem and note that much of corporate law is aimed at responding to this agency problem.
44. See, e.g., ADOLF A. BERLE & GARDINERC MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY 4-7 (1932);
45. Michael C. Jensen & William H. Meckling, Theory ofthe Firm: Managerial Behavior, Agency Costs, and Ownership Structure, 3 J. FIN. ECON. 305, 309 (1976).
46. But see Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 VA. L. REV. 247, 290-91 (1999) (noting that a director's role is more consistent with a trustee than that of an agent).
47. See Bebchuk, supra note 9, at 851.
48. See Shareholder Proposals, Exchange Act Release No. 56,160, Investment Company Act Release No. 27, 913, 72 Fed. Reg. 43, 466, 43, 467 (proposed July 27, 2007) [hereinafter 2007 Shareholder Proposals] (noting that a key right of shareholders is the right to appear at a shareholder meeting and advance proposals on which to vote, including proposals for nominating directorial candidates).
49. See CLARK, supra note 11, at 360.
50. See DEL. CODE ANN. tit 8, §212 (2007) (authority to vote by proxy).
51. See Jill E. Fisch, From Legitimacy to Logic: Reconstructing Proxy Regulation, 46 VAND. L. REV. 1129, 1135 (1993) (noting that the main reason corporations solicit proxies is to satisfy state quorum rules).
52. See Securities Exchange Act of 1934 Regulation 14A, 17 C.F.R. §240.14A (2007).
53. See Securities Exchange Act of 1934 Rule 14a-3,17 C.F.R. §240.14a-3(a) (2007).
54. When a proxy statement is made on behalf of an issuer in connection with the annual meeting involving the election of directors, the proxy statement must also be accompanied or preceded by an annual report.
55. See 17 C.F.R. § 240.14a-3(b) (2007).
56. See 17 C.F.R. § 240.14a-3 (2007).
57. See Securities Exchange Act of 1934 Rule 14a-4, 17 C.F.R. § 240.14a-4(a)(2) (2007).
58. See Jayne W. Barnard, Shareholder Access to the Proxy Revbited, 40 CATH. U. L. REV. 37, 56 (1990);
59. Bebchuk, supra note 9, at 856;
60. Lucian A. Bebchuk, The Myth of the Shareholder Franchbe, 93 VA. L. REV. 675, 688 (2007) [hereinafter Bebchuk, The Myth of the Shareholder Franchbe].
61. See Securities Exchange Act of 1934RuIe 14a-8,17 C.F.R. § 240.14a-8 (2007).
62. Those conditions encompass certain procedural requirements including that the shareholders must hold at least one percent or $2000 in market value of the securities entitled to vote at the meeting and must give notice ofthe proposal.
63. See 17 C.F.R. § 240.14a-8
64. (b). In addition, the company must receive the proposal at its principal executive office no later than 120 calendar days before "the date of the company's proxy statement released to shareholders in connection with the previous year's annual meeting."
65. - 17 C.F.R. § 240.14a-8(e)(2).
66. Moreover, a shareholder may submit no more than one proposal per shareholders' meeting.
67. See 17 C.F.R. § 240.14a-8
68. (c); Adam G. Brimer, Getting Wired at the SEC: Reforming the Proxy Process to Account for New Technologies, 58 ALA. L. REV. 179, 185-86 (2006);
69. Alan R. Palmiter, The Shareholder Proposal Rule: A Failed Experiment in Merit Regulation, 45 ALA. L. REV. 879, 886 (1994).
70. See 17 C.F.R. § 240.14a-8(i)(8).
71. There are a variety of bases upon which a company may exclude a shareholder proposal, even if that proposal satisfies the procedural requirements of Rule 14a-8.
72. See generally Palmiter, supra note 29, at 890-892 (noting the most common bases used to exclude shareholder proposals).
73. See Proposed Amendments to Rule 14a-8, Exchange Act Release No. 12,598, Investment Company Art Release No. 9343, 41 Fed. Reg. 29, 982, 29, 982 (proposed July 7, 1976).
74. Such exclusion also was designed to prevent the circumvention of disclosure requirements required by other aspects of the proxy rules. See Shareholder Proposal Relating to the Election of Directors, Exchange Act Release No. 56,161,
75. Investment Company Art Release No. 27, 914, 72 Fed. Reg. 43, 488, 43, 491 (proposed July 27, 2007); 2007 Shareholder Proposals, supra note 20, at 43, 469.
76. See Bebchuk, The Myth of the Shareholder Franchbe, supra note 28, at 683 tbl.1.
77. See Bebchuk, supra note 9, at 856.
78. See Reexamination of Rules Relating to Shareholder Communications, Shareholder Participation in the Corporate Electoral Process and Corporate Governance Generally, Exchange Art Release No. 13, 482,
79. Investment Company Act Release No. 9740, 42 Fed. Reg. 23,901, 23, 902 (May 11,1977) [hereinafter Shareholder Participation].
80. See Melvin Aron Eisenberg, Access to the Corporate Proxy Machinery, 83 HARV. L. REV. 1489, 1499 (1970) (noting that 1969 estimates placed the cost of proxy fights at forty thousand to one million dollars).
81. See Bebchuk, The Myth of the Shareholder Franchbe, supra note 28, at 683;Etizabeth Cosenza, The Holy Grail of Corporate Governance Reform: Independence or Democracy?, 2007 BYU L. REV. 1, 43 (2007).
82. Shareholders are not entitled to reimbursement of their expenses associated with waging proxy contests.
83. See Lucian Arye Bebchuk & Marcel Kahan, A Framework for Analyzing Legal Policy Towards Proxy Contests, 78 CAL. L. REV. 1071, 1107-09 (1990).
84. Instead, shareholders may be reimbursed only if their costs are viewed as reasonable and the board approves the reimbursement. By contrast, incumbents have a right to be reimbursed for their expenses related to proxy contests so long as those expenses are reasonable.
85. See id.
86. - 8. Security Holder Director Nominations, Exchange Act Release No. 48, 626, Investment Company Act Release No. 26, 206, 68 Fed. Reg. 60, 784, 60, 786 (proposed Oct. 23, 2003) [hereinafter 2003 Proposed Nomination Rule] (noting that recommendations to nominating committees are rarely effective).
87. See id.
88. See 2007 Shareholder Proposals, supra note 20, at 43, 467; FRANKLIN BALOTTI & JESSE FWKELSTEIN, DELAWARE LAWS OF CORPORATIONS AND BUSINESS ORGANIZATIONS §7.9 (4th ed. 2006).
89. See Proposed Amendments to Rule 14a-8 Under the Securities Exchange Art of 1934 Relating to Proposals by Security Holders, Exchange Art Release No. 19, 135, Investment Company Art Release No. 12, 734, 47 Fed. Reg. 47, 420 (proposed Oct. 14, 1982) [hereinafter 1982 Proposed Shareholder Access Amendments]; Eisenberg, supra note 35, at 1505 (noting that "the designation of candidates in the proxy materials is today's nomination").
90. See Eisenberg, supra note 35, at 1504 (noting that the inability to choose among various candidates makes the process of voting pro forma).
91. Id.
92. See Bebchuk, supra note 9, at 856.
93. See Blair & Stout, supra note 18, at 310 (noting that shareholders' voting rights give them little or no control over directors).
94. Cf. Bebchuk, The Myth of the Shareholder Franchise, supra note 28, at 688-690
95. See Cosenza, supra note 36, at 42-43 (noting that allowing for proxy access improves corporate monitoring).
96. See Bebchuk, The Myth ofthe Shareholder Franchise, supra note 28, at 687 (noting small number of challengers);
97. id. at 691 (noting costs of contests). Indeed, hedge funds have increasingly wielded influence in proxy contests.
98. See INSTITUTIONAL S'HOLDER SERVS., 2006 POSTSEASON REPORT: SPOTLIGHT ON EXECUTIVE PAY AND BOARD ACCOUNTABILITY 2 (2006) [hereinafter 2006 PROXY REPORT] (report on file with the Indiana Law Journal).
99. See infra notes 92, 105 and accompanying text. For example, the two most recent proposals for shareholder access to the ballot would provide access to any shareholder or group of shareholders holding at least five percent of a company's securities for a period of one year. See infra notes 105, 123. However, some advocates have criticized this threshold as too onerous, particularly in light of the fact that the only requirement for submission of other proposals is that shareholders own $2000 worth of securities.
100. See RISKMETRICS GROUP, 2007 POSTSEASON REPORT: A CLOSER LOOK AT ACCOUNTABILITY AND ENGAGEMENT 16 (2007) [hereinafter 2007 PROXY REPORT];
101. see also 17 C.F.R. § 240.14a-8(b) (2007) (noting shareholders must hold at least one percent or $2000 in market value of securities).
102. See Cosenza, supra note 36, at 42-43; Eisenberg, supra note 35, at 1504.
103. See Bernard S. Black, Shareholder Passivity Reexamined, 89 MICH. L. REV. 520, 52628 (1990) (noting the view that "[c]ollective action problems make shareholder passivity inevitable").
104. See BERLE & MEANS, supra note 18, at 81; Black, supra note 51, at 527.
105. See BERLE & MEANS, supra note 18, at 81.
106. See CLARK, supra note 11, at 390-91 ;
107. Daniel R. Fischel, The Corporate Governance Movement, 35 VAND. L. REV. 1259, 1277 (1983).
108. See CLARK, supra note 11, at 392-93; Black, supra note 51, at 528; Fischel, supra note 54, at 1277.
109. See 2007 PROXY REPORT, supra note 49, at 5-7.
110. See id. at 5.
111. See id. at 26.
112. See id. at 22. In 2007, thirty-four proxy fights went to vote, up from twenty-one contests in 2006. At least one group of shareholders prevailed in their fight, securing three board seats.
113. See id.
114. See Bebchuk, supra note 9, at 877 (noting that the shareholders' tendency to vote with management may result from rational deference to a party believed to be better informed).
115. See id. at 880.
116. - 2007 PROXY REPORT, supra note 49, at 16.
117. See Hewlett-Packard Co., SEC No-Action Letter, 2007 WL 224970, at *1 (Jan. 22, 2007) (noting that the SECs staff expressed no view on whether HP can exclude the proposal).
118. See Tomoeh Murakami Tse, HP Investors Reject 'Proxy Access '; Proposal Would Have Opened up Board-Nominating Process, WASH. POST, Mar. 15, 2007, at D02. The proposal received thirty-nine percent of the vote, but was later revised to forty-three percent.
119. Id.
120. The vote stemmed from a proposal submitted at UnitedHealth Group, which garnered 45.3% ofthe shareholder vote. 2007 PROXY REPORT, supra note 49, at 16.
121. See id. (describing vote at Cryo-Cell International, a small biotech firm).
122. See Tse, supra note 64.
123. See 2007 PROXY REPORT, supra note 49, at 16.
124. See Tse, supra note 64.
125. See Bainbridge, Director Primacy, supra note 9, at 1754;
126. Roberta Romano, Public Pension FundActivbm in Corporate Governance Reconsidered, 93 COLUM. L. REV. 795, 81112 (1993).
127. See Frank S. Partnoy & Randall S. Thomas, Gap Filling, Hedge Funds, and Financial Innovation 2,20 (Vanderbilt Univ. Law Sch. Law & Econ. Research Paper Series, Paper No. 06-21, 2006), available at http://ssm.com/ abstract=931254.
128. See id. at 24. But Partnoy and Thomas have found that hedge funds engage in a variety of activities, some of which are focused on more long-term strategies.
129. Id.
130. See id. at 49.
131. See Bainbridge, Director Primacy, supra note 9, at 1754; Romano, supra note 70, at 811-12 (noting the distinction between public and private funds and the pressure public funds face to focus on local and/or social issues);
132. Stewart J. Schwab & Randall S. Thomas, Realigning Corporate Governance: Shareholder Activbm by Labor Unions, 96 MlCH. L. REV. 1018, 1022-1023 (1998).
133. See Bainbridge, Director Primacy, supra note 9, at 1754; Bebchuk, supra note 9, at 878.
134. See Bebchuk, supra note 9, at 879-880
135. See 2007 PROXY REPORT, supra note 49, at 20, 31 (pinpointing shareholder proposals receiving strong, and in some cases, majority support).
136. See id. at 44.
137. See Partnoy & Thomas, supra note 71, at 46 (noting that some forms of hedge fund activism, particularly those that focused on targeting corporate governance procedures, may be beneficial to the broader shareholder class).
138. See id. at 21.
139. See id.
140. See Partnoy & Thomas, supra note 71, at 14-15; Schwab & Thomas, supra note 74, at 1035-36,1082-1083 (noting that shareholder proposals cannot succeed without the support of other shareholders, and that such support will not be forthcoming unless such proposals relate to issues that resonate with the majority of shareholders).
141. See INSTTTUTIONAL S'HOLDER SERVS., 2005 POSTSEASON REPORT: CORPORATE GOVERNANCE AT A CROSSROADS 10, 41 (2005) [hereinafter 2005 PROXY REPORT];
142. INSTITUTIONAL S 'HOLDER SERVS., 2004 POSTSEASON REPORT: A NEW CORPORATE GOVERNANCE WORLD: FROM CONFRONTATION TO CONSTRUCTIVE DIALOGUE 5,28 (2004) [hereinafter 2004 PROXY REPORT].
143. Bebchuk, supra note 9, at 856-57. However, proxy access does promise indirect benefits that may influence corporate decision making.
144. See id. at 878.
145. But see Bainbridge, Shareholder Voting Rights, supra note 9, at 603-606 (noting that any increase in managerial accountability necessarily limits managerial power).
146. Securities Art Release No. 2887, Exchange Act Release No. 3347, Investment Company Art Release No. 417, 7 Fed. Reg. 10, 655, 10, 656 (Dec. 18, 1942);
147. see abo Barnard, supra note 28, at 54 n.102. The SEC also proposed a rale allowing shareholders to include a 100-word statement on the proxy statement opposing any management proposal-a predecessor to Rule 14a-8.
148. See Securities Act Release No. 2887, 7 Fed. Reg. at 10, 656; Barnard, supra note 28, at 47.
149. See Barnard, supra note 28, at 54; Fisch, supra note 23, at 1163.
150. See Shareholder Participation, supra note 34, at 23, 901.
151. See id . at 23, 903.
152. The question submitted for consideration was the following: "Should shareholders have access to management's proxy soliciting materials for the purpose of nominating persons of their choice to serve on the board of directors?" Id. The Release then posed questions about the process for such nomination.
153. Id.
154. See 1982 Proposed Shareholder Access Amendments, supra note 41, at 47, 420.
155. See id. at 47, 421.
156. See id.
157. Shareholders would have to be a record or beneficial holder of at least one percent or $1000 in market value of an issuer's securities.
158. Id.
159. See id. at 47, 422.
160. The SEC expected that any rales for such a plan would establish minimum limits on eligibility and the basis for exclusion of any shareholder proposals.
161. See id.
162. See id. In this regard, Proposal III would have been self-executing, thereby eliminating much ofthe SEC staff's participation in the shareholder proposal process. Id.
163. Id.
164. See Amendments to Rule 14a-8 Under the Securities Exchange Art of 1934 Relating to Proposals by Security Holders, Exchange Art Release No. 20, 091, 48 Fed. Reg. 38, 218, 38, 218 (Aug. 16, 1983) [hereinafter 1983 Final Rule] (Final Rule).
165. See id.
166. See id.
167. In fact, a substantial majority of commentators favored Proposal I. Id. Proponents believed that ensuring that shareholders had an economic stake in the company would curtail abuses of the rule. Id. at 38, 219. Interestingly, the adoption of Proposal I triggered sharp criticism from Commissioner Longstreth who believed that the additional procedural rules encompassed in the new amendments "[tilt] significantly and unnecessarily against shareholders seeking access to the proxy machinery." Id. at 38, 223. Commissioner Longstreth would have simply retained Rule 14a-8 in its then existing form.
168. Id.
169. See Regulation of Communications Among Shareholders, Exchange Art Release No. 31,326,
170. Investment Company Act Release No. 19, 031, 57 Fed. Reg. 48, 276, 48, 277 (Oct. 16, 1992) (noting extensive three-year examination of proxy voting rales and procedures).
171. See Fisch, supra note 23, at 1170.
172. See 2003 Proposed Nomination Rule, supra note 38, at 60,784; Press Release, U.S. Securities & Exchange Comm'n, Commission to Review Current Proxy Rules and Regulations to Improve Corporate Democracy, 2003-46 (Apr. 14,2003), available at http://www.sec.gov/news/press/2003-46.htm.
173. See 2003 Proposed Nomination Rule, supra note 38, at 60, 784.
174. See id.
175. See id. at 60, 794.
176. See id. at 60, 789-90.
177. The majority vote resolution could be submitted only by a shareholder holding at least one percent of a company's outstanding shares for a year.
178. Id. at 60, 789.
179. Id. at 60, 789.
180. Id.
181. Thus, in a series of "no-action" letters, the SECs staff took the position that shareholder proposals based on Rule 14a-11 could be excluded from the corporation's proxy statement because, given the passage of time without SEC action, the adoption of such proposal appeared to reflect a position that the SEC no longer supported.
182. See, e.g., Halliburton Co., SEC No-Action Letter, 2005 WL 283290, at *1 (Feb. 7, 2005);
183. Qwest Communications Int'l Inc., SEC No-Action Letter, 2005 WL 283288, at *1 (Feb. 7, 2005).
184. - 462 F.3d 121 (2d Cir. 2006).
185. See id. at 123.
186. The proposal provided that shareholder nominees could be included on the corporate ballot so long as the shareholder making such a nomination held three percent of the outstanding shares for at least a year.
187. Id. at 124 n.3.
188. Am Int'l Group, Inc., SEC No-Action Letter, 2005 WL 372266, at *1 (Feb. 14,2005).
189. See 2007 Final Shareholder Proposal Rule, supra note 7, at 70, 453; AFSCME, 462 F.2d at 123.
190. AFSCME, 462 F.3d at 126;
191. see also 2007 Final Shareholder Proposal Rule, supra note 7, at 70,451 (noting that the SECs position did not allow exclusions based on the election exclusion).
192. SeeAFSCME, 462 F.3d at 123.
193. Id. at 129.
194. See id.
195. See id. at 129-130
196. This ruling occurred because the Second Circuit interpreted the rale to prohibit only those proposals that would result in an immediate election contest, and bylaws focused on procedures did not create such immediate election battles.
197. See id. at 131 (noting that the SEC "[could] certainly change its interpretation ofthe election exclusion").
198. The SEC held a series of roundtables in May 2007 on the issue of shareholder rights more generally. SeegenerallyU.S. Securities & Exchange Comm'n, Spotlight on: Roundtable Discussions Regarding the Proxy Process, http://www.sec.gov/spotught/proxyprrcess.htm.
199. The SEC also sought comments on electronic shareholder forums and whether corporations or shareholders should have the ability to propose and adopt bylaw procedures for including nonbinding shareholder proposals in the corporation's proxy materials. 2007 Shareholder Proposals, supra note 20, at 43, 469.
200. Id.
201. See id.
202. The one-year holding period would apply to each member of the shareholder group. Id. In addition, any soliciting shareholder must be eligible to file and file a Schedule 13G. Id. Schedule 13G is available only for people who have acquired securities without the intention of seeking a change of control of the issuer.
203. See id. IIA. See id. at 43, 470.
204. See id
205. . Indeed, shareholders could even determine the minimum level of share ownership necessary to have such nominations included in the corporation's proxy statement.
206. See id.
207. See Shareholder Proposal Relating to the Election of Directors, Exchange Art Release No. 56,161, Investment Company Art Release No. 27, 914, 72 Fed. Reg. 43, 488, 43, 488-89 (proposed July 27, 2007).
208. Relates to an election for membership on the company's board of directors or analogous governing body." Thus, the proposal would change the existing language which enables the corporation to exclude a proposal if the proposal "relates to an election for membership on the company's board of directors or analogous governing body."
209. Id. at 43,490.
210. In its place, the new rale would provide for exclusion "[i]f the proposal relates to a nomination or an election for membership on the company's board of directors or analogous governing body or a procedure for such nomination or election."
211. Id. at 43, 496.
212. See 2007 Final Shareholder Proposal Rule, supra note 7, at 70, 450.
213. See Securities Exchange Act of 1934 Rule 14a-12,17 C.F.R. §240.14a-12 (2007).
214. See 2007 Final Shareholder Proposal Rule, supra note 7, at 70, 450. To be sure, the proposed rale allowing shareholder access included additional disclosure requirements under Schedule 13G and new Item 24 and Item 25.2007 Shareholder Proposals, supra note 20, at 43, 471-473
215. See 2007 Final Shareholder Proposal Rule, supra note 7, at 70, 451.
216. See id. at 70, 452.
217. In addition to excluding such bylaw provisions, the rule also excluded any provisions that would have the impact of disqualifying a nominee, removing a director prior to the end of her term, or questioning a director's competence or business judgment.
218. See id. at 70, 454.
219. Importantly, however, the SEC made clear that corporations cannot use the rule to exclude proposals relating to voting procedures, such as those requiring majority voting in the election of directors.
220. See id.
221. See id. at 70,453.
222. See id. at 70,452 (noting that inaction by the SEC would promote uncertainty, escalating the confusion created by the AFSCME decision and effectively requiring shareholders and courts to litigate the meaning ofthe proxy rules).
223. See id. at 70, 450. The new rules took effect January 10, 2008.
224. See Wutkowski, supra note 4.
225. See Christopher Cox, Chairman, U.S. Securities & Exchange Comm'n, The SEC Agenda for 2008: Remarks to the 'SEC Speaks in 2008' Program of the Practising Law Institute (Feb. 8. 2008), available at http://www. knowledgemosaic.rom/Gateway/Rules/SP.spch020808cc.020808.htm.
226. In his speech, Cox stated that the SECs Division of Corporate Finance would "continue to pursue our fundamental objective of making the federally-regulated proxy system fit better with the stateauthorized rights of shareholders to determine the directors of the companies they own." Id. To be sure, such a statement is not necessarily a promise to seek some form of proxy access. However, it may ensure that such access will remain part of the governance conversation.
227. See Wutkowski, supra note 4.
228. See 1983 Final Rule, supra note 97, at 38,218 n.3 (noting that some commentators supported the concepts underlying Proposal II, but did not support the proposal itself).
229. See id. at 38,218 n.2 (noting the large number of comments opposing proxy access).
230. See William J. Feis, Is Shareholder Democracy Attainable?, 31 Bus. LAW. 621, 640 (1976).
231. See Internet Availability of Proxy Materials, Exchange Art Release No. 55,146, Investment Company Art Release No. 27,671, 72 Fed. Reg. 4148, 4148-88 (Jan. 29, 2007) [hereinafter Final E-proxy Rule].
232. These rules mark the first time the SEC has sought to rely on the Internet to provide an alternative method for proxy solicitation.
233. See Brimer, supra note 29, at 191.
234. In the past, the SEC has provided interpretive guidance regarding the manner in which electronic measures may satisfy the existing proxy delivery requirements. Thus, the SEC published an interpretive release in October 1995 focusing on the use of electronic media to communicate with investors.
235. See Use of Electronic Media for Delivery Purposes, Securities Act Release No. 7233, Exchange Art Release No. 36,345, Investment Company Act Release No. 21,399, 60 Fed. Reg. 53,458 (Oct. 13, 1995).
236. In April 2000, the SEC published another interpretive release.
237. See Use of Electronic Media, Securities Act Release No. 7856, Exchange Art Release No. 42,728, Investment Company Act 24,426,65 Fed. Reg. 25,843 (May 4,2000).
238. See Brimer, supra note 29, at 186-190 (describing the SECs historical guidance on electronic methods of communication). In contrast, these new rules provide shareholders with an alternative method of delivering proxy materials.
239. See Final E-proxy Rule, supra note 141, at 4148.
240. See Internet Availability of Proxy Materials, Exchange Act Release No. 52,926, Investment Company Act Release No. 27,182,70 Fed. Reg. 74,598 (proposed Dec. 8,2005) [hereinafter Proposed E-proxy Rule].
241. See Final E-proxy Rule, supra note 141, at 4151 n.49. In addition, the notice must be sent forty calendar days before the shareholder meeting date.
242. See id at 4150. The notice must include such information as a statement of the matters to be voted on and information regarding how to request a paper copy of the proxy materials.
243. See id. at 4151-52. To mitigate concerns that shareholders would vote prior to reviewing their proxy statement, a proxy card cannot be sent along with the notice.
244. See id. at 4150. Instead, the proxy card must be posted on the Web site containing the proxy statement, and such site must provide a mechanism for executing the proxy card electronically.
245. See id. at 4153. However, soliciting shareholders and issuers have the option of sending a proxy card ten days after they have distributed notice.
246. See id.
247. - 145. See id. at 4154.
248. See id. at 4149, 4154. The request, however, can be revoked.
249. See id. at 4154 n.86.
250. See id. at 4158.
251. The proposed rules included a provision allowing soliciting shareholders, but not the issuer, to engage in a conditional solicitation by conditioning proxy solicitation on a solicited shareholder's agreement to rely solely on the Internet to access proxy materials. Such a conditional solicitation would mean that soliciting shareholders would not have to furnish paper copies to those who requested them. However, the final rules rejected such conditional solicitations, and hence a soliciting shareholder must send a paper copy to any shareholder to whom notice was sent.
252. See id. at 4150, 4158.
253. See id. at 4164 (noting that "undertaking a proxy contest is often a very costly endeavor");
254. see also supra note 140 and accompanying text
255. See Final E-proxy Rule, supra note 141, at 4162. Issuers and others spent $481.2 million on printing and mailing costs in 2006. Automated Data Processing (ADP) mails proxy materials for beneficial owners, and in 2005, ADP was responsible for mailing about fifty percent of proxy materials.
256. See id. ADP's costs together with issuers and others amounted to $962.4 million.
257. See id.
258. In the adopting release, the SEC noted that the new rules were designed to give soliciting shareholders "an alternative method to furnish proxy materials that may have the effect of reducing the cost of engaging in a proxy contest."
259. See Proposed E-proxy Rule, supra note 143, at 74,599. Elsewhere in the release, the SEC pointed out that the rules could "significantly decrease the cost of proxy solicitation, given the potential decrease in printing and mailing costs."
260. Id. at 74, 607;
261. see also Final E-proxy Rule, supra note 141, at 4162 (noting that reduction in printing and mailing costs and the potential decrease in costs of proxy contests represent the most significant sources of the new rules' economic benefit).
262. See Brimer, supra note 29, at 198 (noting that e-proxy rules should increase efficiency and effectiveness of proxy contests).
263. SEC Proposes to Modernize Rules Governing Proxy Solicitations, 37 Sec. Reg. & L. Rep. (BNA) No.47, at 1958 (Dec. 5, 2005).
264. See Final E-proxy Rule, supra note 141, at 4154.
265. Id. at 4162.
266. See id. at 4163.
267. See id. at 4163 (noting that cost savings will be substantially reduced if paper copies are supplied on an on-demand basis).
268. See Proposed E-proxy Rule, supra note 143, at 74,613.
269. See Final E-proxy Rule, supra note 141, at 4150.
270. See id. at 4154. However, the ability to predict the number of requested paper copies with accuracy may increase over time as issuers and shareholders gain familiarity with shareholder preferences.
271. See id. at 4154 n.86.
272. See Brimer, supra note 29, at 192 (noting problems associated with prior electronic releases).
273. See Final E-proxy Rule, supra note 141, at 4149.
274. See id.;
275. see also Brimer, supra note 29, at 179. Other studies reveal that Americans spend an average of fourteen hours online each month.
276. See id
277. See Final E-proxy Rule, supra note 141, at 4149.
278. See id. at 4163.
279. See id.
280. See id.
281. Memorandum from David Huntington, Office of the Chairman, to File S7-10-05: Internet Availability of Proxy Materials 14 (Nov. 28, 2006), available at http://www.sec.gov/rules/proposed/s71005/s71005-159.pdf.
282. See TheCorporateCounsel.net Blog, http://www.thecorporatecounsel.net/ blog/archive/001628.html (Jan. 15, 2008 6:07 EST).
283. See Final E-proxy Rule, supra note 141, at 4163. The exact cost estimate was $2,020,475.
284. Id.
285. See id. at 4158.
286. See id. The SEC hopes that this will curtail abuses of shareholders conducting nuisance contests.
287. Id.
288. - 2007 Shareholder Proposals, supra note 20, at 43,483.
289. See 17 C.F.R. § 240.14a-7(a)(2)(A)-(B) (2007).
290. Thus, the shareholder list must be provided in the format requested by shareholders, but only to the extent that such form is available to the corporation "without undue burden or expense." 17 C.F.R. § 240.14a-7(a)(iii).
291. See DEL. CODE ANN. tit. 8, § 219(a) (2007) ("Nothing contained in this section shall require the corporation to include electronic mail addresses or other electronic contact information on such list").
292. See Final E-proxy Rule, supra note 141, at 4154.
293. See id. at 4151, 4158.
294. See supra note 105.
295. See 17C.F.R.§ 240.14a-8(m)(1)(noting company's right to include reasons it believes shareholders should vote against a proposal).
296. See id. (noting that shareholders may express their views in the context of their supporting statement).
297. See 17 C.F.R. § 240.14a-8(d).
298. A company must send a copy of its opposing statement to shareholders before it mails the proxy materials.
299. See 17 C.F.R. § 240.14a-8(m)(3). However, such a notification occurs after shareholders have submitted their proposals.
300. See 17 C.F.R. § 240.14a-8(e)(2).
301. The e-proxy rules enable shareholders to solicit votes and hence receive such votes from other shareholders. As a result, those rules enable shareholders to track the voting behavior or shareholders. By contrast, under a proxy access regime where shareholders would be entitled to have their names included on the corporation's proxy statement, shareholders submit their votes to the corporation and hence the corporation-and not the shareholders-have the ability to track those votes.
302. See Eisenberg, supra note 35, at 1504 ("[I]ncumbents gain an important psychological advantage in soliciting under the name of 'the corporation.'").
303. See supra note 181 and accompanying text.
304. For example, majority voting proposals have won significant shareholder support in the last few years.
305. See infra note 218 and accompanying text.
306. See supra note 66 and accompanying text.
307. See Final E-proxy Rule, supra note 141, at 4153. The Rule requires that the issuer concurrently provide shareholders with at least one method of executing a proxy card, which includes providing an electronic voting platform or a telephone number. However, merely requiring a means to request a paper copy of the proxy card would be insufficient.
308. See id. at 4153-4154
309. See Danielle Keats Citron, Open Code Governance, 2008 U. CHI. LEGAL F. 355, 363-365 (discussing instances where thousands of votes were lost or added during various municipal, state, and federal elections, including the presidential election).
310. Id. at 364.
311. Id. at 364-365
312. See id. at 368-369
313. See Final E-proxy Rule, supra note 141, at 4152.
314. See id. at 4152-4153
315. See id. at 4153.
316. See id. at 4152 (noting that a large majority of shares are already voted electronically).
317. See CLAUDIA H. ALLEN, STUDY OF MAJORITY VOTING IN DIRECTOR ELECTIONS ii (2007), available at http:/www.ngelaw.com/files/upload/majority-callen-020707. pdf.
318. See 2003 Proposed Nomination Rule, supra note 38, at 60, 786 n.52;
319. J . W. Verret, Pandora's Ballot Box, or a Proxy with Moxie? Majority Voting, Corporate Ballot Access, and the Legend of Martin Lipton Re-Examined, 62 Bus. LAW. 1007, 1010 (2007).
320. Part of the reason corporations have a withhold option, but not one providing for a vote against a director, is grounded in the proxy rules. The proxy rules require corporations to ensure that their proxy card has a place where shareholders can withhold their vote.
321. See Securities Exchange Act of 1934 Rule 14a-4(b)(2), 17 C.F.R. § 240.14a-4(b)(2) (2007). However, the SEC decided against implementing a proposal that would have required proxy cards to contain a mechanism to allow shareholders to vote against a director because of concerns about its legal effect See Shareholder Communications, Shareholder Participation in the Corporate Electoral Process and Corporate Governance Generally, Exchange Act Release No. 34-16356, 44 Fed. Reg. 68,764, 68,765 (Nov. 29, 1979).
322. Withhold-the-vote campaigns were recommended in a 1993 law review article by former SEC Commissioner and Professor Joseph Grundfest. See Joseph A. Grundfest, Just Vote No: A Minimalist Strategy for Dealing with Barbarians Inside the Gates, 45 STAN. L. REV. 857 (1993). Withhold-the-vote campaigns must comply with the proxy rules. Generally, those rules allow shareholders who conduct such campaigns an exemption for filing a proxy statement so long as such shareholders do not solicit proxies during the campaign.
323. See Rule 14a-2(b)(1), 17 C.F.R. § 240.14a-2(b)(1) (2007).
324. See In re Walt Disney Co. Derivative Litig., 731 A.2d 342, 352 (Del. Ch. 1998), aff'd in part, rev 'd in part, and remanded in part sub nom., Brehm v. Eisner, 746 A.2d 244 (Del. Super. Ct. 2000). Indeed, Eisner encouraged Disney directors to hire Michael Ovitz. Yet almost immediately after his hire, directors became dissatisfied with Ovitz's performance and eventually fired him some fourteen months later.
325. See id. Ovitz's severance package enabled him to receive $140 million upon his termination.
326. Id. at 350.
327. - 2004 PROXY REPORT, supra note 83, at 5.
328. See id. at 9. Shareholders withheld their vote to express their dissatisfaction with directors' decision not to implement majority voting.
329. See id.
330. See id.
331. To be sure, the Disney vote did appear to generate indirect pressure on Eisner to resign. Hence, within hours of the vote, Disney removed Eisner from his position as board chair, and six months later, Eisner resigned from his post as CEO. See id. at 5.
332. Most corporations require that a candidate receive a majority of the votes present and voting at a meeting or a majority of the quorum, as opposed to the more stringent standard of a majority of the outstanding votes. See ALLEN, supra note 199, at iv.
333. See Verret, supra note 200, at 1010.
334. See PFIZER INC., CORPORATE GOVERNANCE PRINCIPLES 1-2 (2008), available at http://media.pfizer.com/files/investors/corporate-governance/cg-principles.pdf,
335. see also 2005 PROXY REPORT, supra note 83, at 10. Pfizer adopted the plurality plus model in June 2005. See Press Release, Pfizer, Inc., Pfizer to Amend Corporate Governance Principles Regarding Election of Directors (June 23, 2005), available at http://www.pfizer.com/news/press-releases/pfizer-press- releases.jsp (follow "Press Release Archive," then follow "2005 Archives").
336. See PFIZER, INC., supra note 210, at 1.
337. Id. at 2.
338. Between January 1 and June 10 of 2005, 2006, and 2007, shareholders submitted 54, 84, and 37 such proposals, respectively. See 2007 PROXY REPORT, supra note 49, at 6.
339. See Stephen Taub, Investors Back Shareholder Resolutions, CFO.COM, Aug. 22, 2006, http://www.cfo.com/article.cfm/7826000?f=search.
340. - 2006 PROXY REPORT, supra note 48, at 2. In 2005, Council of Institutional Investors urged 1500 of the largest U.S. companies to adopt majority voting.
341. See Arthur Fleischer, Jr., Majority Voting and Shareholder Access, in PRE-CONFERENCE BRIEFING TO THE 39TH ANNUAL INSTITUTE ON SECURITIES REGULATION: SHAREHOLDER ACTIVISM: FINDING THE BALANCE 313, 320 (PLI Corp. Law & Practice, Course Handbook Series No. 11508, 2007).
342. See 2007 PROXY REPORT, supra note 49, at 16.
343. See 2006 PROXY REPORT, supra note 48, at 3 chart 1.
344. See 2007 PROXY REPORT, supra note 49, at 6, 17. The average shareholder support was 44.3% in 2005, 47.7% in 2006, and 50.3% in 2007.
345. Id. at 6.
346. See Fleischer, supra note 215, at 317 ("Majority voting is clearly becoming the norm in United States corporations.").
347. See Brooke A. Masters, Proxy Measures Pushing Corporate Accountability Gain Support, WASH. POST, June 17, 2006, at D1 (noting that fewer than thirty companies had majority vote regimes in place at the start of 2005).
348. See ALLEN, supra note 199, at i. These percentages include corporations that adopt true majority voting regimes as well as those that have adopted a plurality plus model.
349. See id. at iii.
350. See id. at vi.
351. See Bebchuk, supra note 9, at 854.
352. - 2007 PROXY REPORT, supra note 49, at 17.
353. See id.
354. See, e.g., DEL. CODE ANN. tit. 8, § 216(3) (Supp. 2008);
355. MODEL BUS. CORP. ACT § 7.28(a) (2007);
356. ALLEN, supra note 199, at 4-5 n.7.
357. The California code also requires that a director who does not receive a majority vote be removed from office within ninety days. See CAL. CORP. CODE § 708.5 (West Supp. 2009).
358. These states include Nevada, North Dakota, Ohio, Virginia, and Washington. See ALLEN, supra note 199, at v-vi.
359. See COMM. ON CORPORATE LAWS, AM. BAR ASS'N, PRELIMINARY REPORT OF THE COMMITTEE ON CORPORATE LAWS ON VOTING BY SHAREHOLDERS FOR THE ELECTION OF DIRECTORS 7 (2006), http ://www.abanet.org/buslaw/newsletter/0044/materials/f3. pdf (discussing reasons for adopting the plurality plus model).
360. See MODEL Bus. CORP. ACT § 10.22(a)(2) (2007); Comm. on Corporate Laws, Changes in the Model Business Corporation Act-Amendments to Chapter 7 and Related Provisions Relating to Shareholder Action Without a Meeting, Chapters 8 and 10 Relating to Shareholder Voting for the Election of Directors, and Chapter 13 Relating to Appraisal and Other Remedies for Fundamental Transactions, 61 Bus. LAW. 1427, 1432-33 (2006).
361. See MODEL BUS. CORP. ACT § 10.22(c)(1).
362. See Marcel Kahan & Ehud Kamar, Price Discrimination in the Market for Corporate Law, 86 CORNELL L. REV. 1205, 1210 (2001).
363. See DEL. CODE ANN., tit. 8, § 216 (Supp. 2008).
364. See DEL. CODE. ANN., tit. 8, § 141(b) (Supp. 2008).
365. See ALLEN, supra note 199, at vi. Such states include Maine, Texas, Utah, and Virginia.
366. See id.
367. See Fleischer, supra note 215, at 317. As of January 2009, however, the SEC has not acted on the NYSE proposal to amend Rule 452.
368. See Abigail Arms, Trends in Corporate Governance of the Largest U.S. Public Companies General Governance Practices, in PREPARATION OF ANNUAL DISCLOSURE DOCUMENTS 2009, at 17, 29 (PLI Corp. Law & Practice, Course Handbook Series No. 18393, 2009).
369. See NYSE, Inc., Rule 452 (2009), available at http://rules.nyse.com/ nysetools/Exchangeviewer.asp;?SelectedNode=chp-1-2manual=/nyse/ny se-rules/nyse-rules/.
370. Marcel Kahn & Edward Rock, The Hanging Chads of Corporate Voting, 96 GEO. L.J. 1227, 1250 (2008).
371. Verret, supra note 200, at 1040.
372. See Black, supra note 51, at 561.
373. Id.
374. See 2007 PROXY REPORT, supra note 49, at 29 (noting belief that broker votes were decisive in defeating the withhold-the-vote campaign against directors at CVS).
375. See PROXY WORKING GROUP, NYSE, INC., REPORT AND RECOMMENDATIONS 20-23 (2006), available at http:/www.nyse.com/pdfs/REVISED-NYSE-Report-6-5-06.pdf.
376. LATHAM & WATKINS LLP, MAJORITY VOTE FOR DIRECTORS: THE LATEST CORPORATE GOVERNANCE INITIATIVE 1-3 (2005), http://www.lw.com/upload/pubContent/ -pdf/pub1437-1.pdf.
377. See Martin Lipton, What Directors Can Expect in the New Year, COMPLIANCE WEEK, Jan. 3, 2006, http://www.complianceweek.com/article/2161/what-directore- can-expert-in-the-new-year.
378. See ALLEN, supra note 199, at iii.
379. Some proxy access proposals allow corporations to opt into proxy access, hence even proxy access does not promise universal coverage. See supra note 94 and accompanying text. Yet recent proposals allow shareholders the choice of deciding whether to implement proxy access or one that broadly covers all public corporations.
380. See supra Part II.B.
381. See Wutkowski, supra note 4 (quoting Professor Grundfest, a former SEC commissioner, regarding the significance of majority voting to shareholder empowerment).
382. See Grundfest, supra note 202, at 865-866
383. - 2007 PROXY REPORT, supra note 49, at 28.
384. See ALLEN, supra note 199, at i, 177 n. 156.
385. See Verret, supra note 200, at 1035.
386. See id.
387. Of course, the fact that it is a negative right can be viewed as beneficial to shareholders for at least two reasons. First, it may alleviate any problems associated with gaining shareholder agreement on a particular candidate. Indeed, shareholders have varied, and sometimes divergent, interests. See e.g., Iman Anabtawi, Some Skepticism About Increasing Shareholder Power, 53 UCLA L. REV. 561, 564 (2006) (noting the distinct and sometimes conflicting interests among shareholders);
388. K.A.D. Cámara, Classifying Institutional Investors, 30 J. CORP. L. 219, 229-42 (2005) (discussing divergent concerns among investors). Their diversity of interests may make it far easier for shareholders to collaborate when the only issue is rejection of an incumbent candidate and the status quo, as opposed to seeking agreement on a particular candidate. Second, majority voting may be ideal because it leaves the choice regarding the nomination of directorial candidates to the discretion of the board, thus alleviating concerns regarding competency.
389. See ALLEN, supra note 199, at iv (describing mechanics of majority voting, which does not impact the ability to nominate a candidate).
390. See Grundfest, supra note 202, at 866.
391. See Bebchuk, supra note 9, at 878;
392. Grundfest, supra note 202, at 865. To be sure, it remains possible that if shareholders are reluctant to use their withhold power, then the threat also may ring hollow.
393. See 2007 PROXY REPORT, supra note 49, at 30.
394. Given the high levels of support for majority voting, no one class of shareholder would be sufficient to garner such support. Instead, the nature of the support indicates that different types of shareholders combined to support majority voting.
395. See Bainbridge, Director Primacy, supra note 9, at 1754-1757
396. See 2004 PROXY REPORT, supra note 83, at 28.
397. See ALLEN, supra note 199, at iv.
398. See id. Because of concerns associated with the discretion afforded directors under the plurality plus regime, Institutional Shareholder Services (ISS) began recommending against such voting policies.
399. See id. at 217.
400. See id. at iv.
401. See id. (General Electric Co. and JPMorgan Chase & Co.).
402. See id. at iii-iv.
403. See id. at ii. The trend to move away from the plurality model was sparked by Intel Corporation's adoption of a true majority regime as well as ISS's refusal to support such models.
404. See id. at iii-iv. Thus, forty-four percent of S&P 500 companies and thirty-eight percent of Fortune 500 companies have true majority systems.
405. See DEL. CODE ANN., tit 8 § 141(b) (Supp. 2008);
406. MODEL BUS. CORP. ACT § 8.05(e) (2007).
407. See ALLEN, supra note 199, at 171 (noting resignation policy of General Electric Co.).
408. William K. Sjostrom, Jr. & Young Sang Kim, Majority Voting for the Election of Directors, 40 CONN. L. REV. 459, 487 (2007).
409. In fact, Pfizer adopted majority voting in the form of a policy. See ALLEN, supra note 199, at ii.
410. See id. at iii.
411. See id. at ii.
412. Thus, in February 2006, seventy-nine percent of companies adopting a majority vote provision did so by way of a policy. In comparison, by the start of 2008, only forty-two percent of companies chose to adopt a majority voting provision via a policy. See id. at ii.
413. See MODEL Bus. CORP. ACT § 10.20 (2007).
414. See DEL. CODE ANN., tit 8, § 216 (Supp. 2008).
415. See Lipton, supra note 246.
416. See 2007 PROXY REPORT, supra note 49, at 17.
417. See id. (noting that proposals have been withdrawn primarily because companies have agreed to amend their bylaws and allow for majority voting).
418. If proxy access occurs by way of a bylaw, then similar concerns may be raised about such a mechanism. However, the SEC,s latest rule appears to have foreclosed bylaw proposals as a possibility. See supra notes 126-131 and accompanying text. Instead, it is likely that if proxy access occurs, it will be through a more permanent vehicle, such as a change in the proxy rules themselves.
419. See Sjostrom & Kim, supra note 271, at 487-489
420. See ALLEN, supra note 199, at iv (noting that ninety-two percent of majority voting provisions have carve-outs for contested elections).
421. See Electronic Shareholder Forums, Exchange Act Release No. 57, 172, Investment Company Act Release No. 28,124, 73 Fed. Reg. 4450 (Jan. 25, 2008) [hereinafter Electronic Shareholder Forums]. The rules took effect February 25, 2008.
422. See id.
423. See 17 C.F.R. § 240.14a-3(a) (2007).
424. See 17C.F.R. § 240.14a-1(1);
425. see also Long Island Lighting Co. v. Barbash, 779 F.2d 793, 796 (2d Cir. 1985) (defining a solicitation as any communication that is part of a continuous plan that will result in a request for a proxy).
426. See Electronic Shareholder Forums, supra note 284, at 4453.
427. See id. The rules add a new exemption to Rule 14a-2, making clear that participation in an electronic shareholder forum would not constitute a solicitation so long as the soliciting person, directly or indirectly, does not seek the power to act as a proxy.
428. While the proposing amendment sought comments on whether electronic shareholder forums should supplant the nonbinding shareholder proposal process, the SEC decided against supplanting Rule 14a-8. See id. at 4452. Instead, the communications serve as an additional device for communications between shareholders and managers.
429. See id. at 4453.
430. See id.
431. See id. at 4454.
432. See id. at 4453-4454
433. See id. at 4451.
434. - 2007 PROXY REPORT, supra note 49, at 11. Jackson's campaign stemmed from his frustration with the directors' approval of a CEO salary of $107.5 million despite the company share price falling by almost ten percent.
435. See id.
436. See Electronic Shareholder Forums, supra note 284, at 4457.
437. See, e.g., Daniel Adam Birnhak, Online Shareholder Meetings: Corporate Law Anomalies or the Future of Governance?, 29 RUTGERS COMPUTER & TECH. L.J. 423, 445 (2003);
438. Elizabeth Boros, Virtual Shareholder Meetings, DUKE L. & TECH. REV. 8, 9 (2004);
439. see also SECURITIES IN THE ELECTRONIC AGE: A PRACTICAL GUIDE TO THE LAW AND REGULATION § 8.04 (John F. Olson & Carmen J. Lawrence eds., 3d ed. 2002).
440. See Birnhak, supra note 297, at 445-446
441. See id. at 445.
442. See W. Trexler Proffitt, Jr. & Andrew Spicer, Shaping the Shareholder Activbm Agenda: Institutional Investors and Global Social Issues, A STRATEGIC ORG. 165, 173-174 (2006).
443. See id.
444. There is also evidence that staggered boards not only reduce shareholder returns, but also correlate with low firm value. See Bebchuk, supra note 9, at 853.
445. Rivka Weill, Declassifying the Classified, 31 DEL. J. CORP. L. 891, 895 (2006).
446. See CLARK, supra note 11, at 95.
447. See Bebchuk, supra note 9, at 852.
448. See id.
449. See id.
450. Thus, such proposals received an average shareholder support of 60.5% in 2005,66.8% in 2006, and 63.9% in 2007.2007 PROXY REPORT, supra note 49, at 6.
451. See 2006 PROXY REPORT, supra note 48, at 3-4. In the first half of 2005, only forty-two proposals were submitted regarding declassification, while eighty-four majority vote proposals were submitted relating to majority voting during that same period.
452. Id. at 3 chart 1.
453. Bebchuk, supra note 9, at 854 (examining the period from 1997-2003).
454. See id. at 854-855
455. See 2007 PROXY REPORT, supra note 49, at 23. About sixty percent of S&P companies have converted to annual elections. Id.
456. See id.
457. See id.
458. Id.
459. Bebchuk, supra note 9, at 878.
460. See id.
461. - 2007 PROXY REPORT, supra note 49, at 3.
462. See Diane Del Guerico.Laura Seery & Tracie Woidtke,Do Boards Pay Attention When Institutional Investors "Just Vote No "?, 90 J. FIN. ECON. 84 (2008);
463. Partnoy & Thomas, supra note 71, at 10.
464. See Bebchuk, supra note 9, at 878.
465. In fact, Bebchuk's study, pinpointing directors' willingness to ignore nonbinding shareholder resolutions, demonstrates that shareholders' ability to indirectly influence managers is significantly undermined when managers perceive that there are no genuine repercussions for their actions.
466. See supra note 135 and accompanying text.