Embattled CEOs

Texas Law Review

Volumn 88, Issue 5, 2010, Pages 987-1051

  Kahan, Marcel ^a   Rock, Edward ^a  

^a NEW YORK UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 78649309479     PISSN: 00404411     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (471)

1. There have been several articles in the trade press on the "decline of the imperial CEO." See, e.g., David Leonhardt with Andrew Ross Sorkin, Reining in the Imperial C. E. O.: Handshakes Are Becoming a Bit Less Golden, N. Y. TIMES, Sept. 15, 2002, § 3, at 1 (chronicling attempts by certain boards to restrain CEOs' salaries). The focus of these articles, however, has largely been on CEO firings and compensation.
2. Id. While, as we discuss below, both of these are elements of the decline of CEO power, they are only a piece of a much larger picture.
3. JONATHAN SWIFT, GULLIVER'S TRAVELS 4 (Milo Winter illustrator, Rand McNally & Co. 1912) (1726), available at http://www.jaffebros.com/lee/ gulliver/winter/p1.jpeg.
4. MYLES L. MACE, DIRECTORS: MYTH AND REALITY (1971).
5. Id. at 78-79. Mace also comments: "This point of view was confirmed many times during our study."
6. Id. at 79.
7. Id. at 84.
8. There is a huge literature on "power" in philosophy, sociology, and political science. Important contributions from which we base some of our assertions include ROBERT DAHL, WHO GOVERNS? (2d ed. 2005);
9. STEVEN LUKES, POWER: A RADICAL VIEW (2d ed. 2005);
10. PETER MORRISS, POWER: A PHILOSOPHICAL ANALYSIS (2d ed. 2002);
11. and DENNIS WRONG, POWER: ITS FORMS, BASES, AND USES (Transaction ed., Transaction Publishers 1995) (1979). Because our interest is essentially practical and comparative-whether CEOs are less powerful than they used to be?-we do not need to come up with a comprehensive analysis of power. Rather, it is enough to identify a set of features that approximate the recognized scope of the term power in corporate law and governance. We assert without proving that these aspects capture the essential elements of "CEO power", including the various aspects of "power to" and "power over" as well as the related notions of "autonomy."
12. Cf. LUKES, supra note 6, at 16-19 (describing a "one- dimensional" view of political power that is best understood as the ability to make decisions affecting others).
13. See NELSON W. POLSBY, COMMUNITY POWER AND POLITICAL THEORY 3-4 (1980) (discussing the concept of power and suggesting that the amount of power a decision maker possesses is directly related to his ability to make important decisions that affect others and change future events).
14. Cf. id. at 25 (noting a more developed theory of political power incorporating agenda setting as an aspect of the ability to make decisions).
15. See DAHL, supra note 6, at 66 (arguing that a decision maker's power can be measured by "the frequency with which he successfully initiates an important policy over the opposition of others, or vetoes policies initiated by others").
16. See WRONG, supra note 6, at 36-41 (exploring the concept of "authority" and explaining how powerful leaders are able to impose their decisions and judgments on others without being questioned or tested).
17. In his groundbreaking work analyzing the political power structures in New Haven, Connecticut, Robert Dahl used the frequency of second-guessing veto power used by other parties as a rough measure of their influence over the decision maker. DAHL, supra note 6, at 66;
18. see also id. at 163-65 (arguing that decision makers who must ultimately answer to other actors-such as politicians who must win future elections to remain in office-are greatly influenced by the preferences of those other actors when deciding what policies to adopt or reject).
19. See LUKES, supra note 6, at 22 (highlighting the importance scope plays in understanding the amount of power invested in the decision maker).
20. WRONG, supra note 6, at 14-16
21. (citing Bertrand de Jouvenel, Authority: The Efficient Imperative, in THE NATURE OF POLITICS 84, 85 (Dennis Hale & Marc Landy eds., 1992)).
22. Id. at 14-15.
23. Id. at 14-16.
24. Id.
25. For a comprehensive survey of the complexity of political power and decision making in one American city, see DAHL, supra note 6. Dahl himself calls the subject "among the most complex phenomena we struggle to understand."
26. Id. at xi.
27. See id. at 89 (observing that indirect influences on decision making may be very great but difficult to see compared to direct influences).
28. Bernard S. Black, Shareholder Passivity Reexamined, 89 MICH. L. REV. 520, 570 (1990). In examining the different measures of concentration of shareholding discussed in the text, it is worth remembering that different studies examine different samples and may define terms differently. The most important results are the trends within a sample.
29. See, e.g., Bernard S. Black, Agents Watching Agents: The Promise of Institutional Investor Voice, 39 UCLA L. REV. 811, 827, 830-49 (1991) (arguing that the increase in institutional equity ownership would improve corporate performance).
30. But see, e.g., Edward B. Rock, The Logic and (Uncertain) Significance of Institutional Shareholder Activism, 79 GEO. L. J. 445, 452 (1991) ("[R]ecent developments, including the increased concentration of shareholdings, the emergence of new players, and the increased activism of institutional shareholders, are unlikely to bring about a fundamental change in corporate law....").
31. See Marcel Kahan & Edward B. Rock, Hedge Funds in Corporate Governance and Corporate Control, 155 U. PA. L. REV. 1021, 1024-26 (2007) (exploring activism by hedge funds, which exceeds that by traditional institutional investors, including recent examples and potential problems).
32. See infra tbl.1;
33. see also BD. OF GOVERNORS OF THE FED. RESERVE SYS., FLOW OF FUNDS ACCOUNTS OF THE UNITED STATES: ANNUAL FLOWS AND OUTSTANDINGS 1985-1994, at 83 (2009), available at http://www.federalreserve.gov/releases/z1/current/annuals/ a1985-1994.pdf [hereinafter ANNUAL FLOWS AND OUTSTANDINGS 1985-1994];
34. BD. OF GOVERNORS OF THE FED. RESERVE SYS., FLOW OF FUNDS ACCOUNTS OF THE UNITED STATES: ANNUAL FLOWS AND OUTSTANDINGS 2005-2008, at 83 (2009), available at http://www.federalreserve.gov/releases/z1/current/annuals/a2005-2008.pdf [hereinafter ANNUAL FLOWS AND OUTSTANDINGS 2005-2008] (both providing the level values from which the percentages were calculated).
35. Generally, values for the households and nonprofit organizations sector are residuals; in other words, such values equal known totals for all sectors less known values for other sectors. 1 BD. OF GOVERNORS OF THE FED. RESERVE SYS., GUIDE TO THE FLOW OF FUNDS ACCOUNTS 170 (1993). Besides pension funds, mutual funds, banks, insurance companies, brokers/dealers, and households and nonprofits, the Federal Reserve provides data for ownership by state and local governments and foreign residents, among others.
36. See, e.g., BD. OF GOVERNORS OF THE FED. RESERVE SYS., FLOW OF FUNDS ACCOUNTS OF THE UNITED STATES: FLOWS AND OUTSTANDINGS THIRD QUARTER 2009, at 7 (2009), available at http://www.federalreserve.gov/releases/z1/current/zi.pdf [hereinafter FLOWS AND OUTSTANDINGS THIRD QUARTER 2009] (listing debt growth by sector: households, business, state and local governments, federal government, domestic financial sectors, and foreign);
37. id. at 18-38 (providing data by sector: households and nonprofit organizations, life insurance companies, and private pension funds).
38. See supra tbl.1;
39. see also BD. OF GOVERNORS OF THE FED. RESERVE SYS., FLOW OF FUNDS ACCOUNTS OF THE UNITED STATES: ANNUAL FLOWS AND OUTSTANDINGS 1965-1974, at 83 (2009), available at http://www.federalreserve.gov/releases/z1/Current/annuals/ a1965-1974.pdf [hereinafter ANNUAL FLOWS AND OUTSTANDINGS 1965-1974];
40. ANNUAL FLOWS AND OUTSTANDINGS 1985-1994, supra note 23, at 55;
41. ANNUAL FLOWS AND OUTSTANDINGS 2005-2008, supra note 23, at 55 (all providing the level values from which the percentages were calculated).
42. See Rochelle L. Antoniewicz, A Comparison of the Household Sector from the Flow of Funds Accounts and the Survey of Consumer Finances 10 (Oct. 2000) (unpublished manuscript, on file at http://www.federalreserve.gov/PUBS/oss/oss2/ papers/antoniewicz-paper.pdf) ("Because hedge funds are not required to file any documentation on their assets or asset values, the flow of funds cannot separate these financial intermediaries from the household sector. Therefore, hedge fund assets are contained within the FFA household sector assets."); see
43. also FLOWS AND OUTSTANDINGS THIRD QUARTER 2009, supra note 24, at 104 n. 1 (indicating that the households and nonprofit organizations sector includes domestic hedge funds).
44. See MARKO MASLAKOVIC, INT'L FIN. SERVS., HEDGE FUNDS: CITY BUSINESS SERIES 1 (2007), http://www.ifsl.org.uk/upload/CBS-Hedge-Funds-2007.pdf (noting the hedge fund industry's recent "remarkable growth").
45. See INT'L FIN. SERVS. LONDON, HEDGE FUNDS 2009, at 1, (2009) available at http://www.ifsl.org.uk/upload/CBS-Hedge%20Funds%202009 (1).pdf (reporting that hedge fund assets plummeted approximately 30% in 2008 and may fall a further 20% in 2009).
46. Id.
47. Brian G. Cartwright, Gen. Counsel, SEC, Speech by SEC Staff: The Future of Securities Regulation (Oct. 24, 2007) (transcript available at http://sec.gov/news/speech/2007/spch102407bgc.htm).
48. Id.
49. See supra tbl.1;
50. see also BD. OF GOVERNORS OF THE FED. RESERVE SYS., FLOW OF FUNDS ACCOUNTS OF THE UNITED STATES: ANNUAL FLOWS AND OUTSTANDINGS 1945-1954, at 83 (2009), available at http://www.federalreserve.gov/releases/z1/Current/annuals/ a1945-1954.pdf [hereinafter ANNUAL FLOWS AND OUTSTANDINGS 1945-1954];
51. ANNUAL FLOWS AND OUTSTANDINGS 1985-1994, supra note 23, at 68 (both providing the level values from which the percentages were calculated).
52. See Black, supra note 20, at 596-98 ("[W]e can't expect corporate pension managers to become visibly active in the best of circumstances.... ").
53. See ANNUAL FLOWS AND OUTSTANDINGS 1985-1994, supra note 23, at 83;
54. ANNUAL FLOWS AND OUTSTANDINGS 2005-2008, supra note 23, at 83 (both providing the level values from which the percentages were calculated).
55. See Alvin Lurie, How a Lawsuit Almost Strangled Pensions, POINTOFLAW. COM, Nov. 12, 2006, http://www.pointoflaw.com/columns/archives/003183.php ("For many years the design of pension plans has been shifting away from the 'defined benefit' format that was once typical. Employers came to dislike such plans because they can impose devastating new funding liabilities in certain situations, as when interest rates sink while the stock market declines. Employees do not find such plans as suitable as they once did because they no longer expect to follow the model of lifetime one-workplace employment for which the plans were originally designed.").
56. See ANNUAL FLOWS AND OUTSTANDINGS 1985-1994, supra note 23, at 83;
57. ANNUAL FLOWS AND OUTSTANDINGS 2005-2008, supra note 23, at 83 (both providing the level values from which the percentages were calculated).
58. See infra notes 85-109 and accompanying text (highlighting increased buyout opposition and influence on corporate structure by mutual funds, sometimes in cooperation with traditionally more activist hedge funds).
59. See Kahan & Rock, supra note 22, at 1029-42 (discussing methods by which hedge funds have pressured for change in corporate governance, blocked acquisitions, and bought or bid for portfolio companies).
60. See id. (highlighting a number of examples of hedge fund activism).
61. Id. at 1024.
62. Id.
63. Id.
64. Id. at 1031.
65. Id. at 1024.
66. Id.
67. Id.
68. Id. at 1025.
69. William W. Bratton, Hedge Funds and Governance Targets, 95 GEO. L. J. 1375, 1392 (2007).
70. Kahan & Rock, supra note 22, at 1025.
71. Id.
72. Id.
73. Id.
74. Id.
75. Id.
76. Id. at 1031.
77. Id.
78. Id. at 1033.
79. See Jared A. Favole & Mike Barris, With 9.6% Stake in Target, Ackman Fires Value Salvo, WALL ST. J., July 17, 2007, at C3 (reporting that a 9.6% stakeholder in Target planned to pressure the retailer to increase value).
80. See Brad Dorfman, Kraft in Deal with Peltz's Trian, REUTERS, Nov. 7, 2007, http://www.reuters.com/article/idUSN0757299320071108 (describing a deal struck between Kraft and an activist shareholder regarding the composition of the board).
81. See Ann Zimmerman & Mary Ellen Lloyd, Home Depot Draws Proxy Threat from Investor, WALL ST. J., Dec. 19, 2006, at A10 (indicating a potential conflict stemming from stakeholder Relational Development's disapproval of Home Depot's growth strategy).
82. See Jonathan Liss, Icahn, WCI Management Trade Barbs at Hint of Hostile Bid; Shares Jump, SEEKING ALPHA, Mar. 14, 2007, http://seekingalpha.com/article/ 29487-icahn-wcimanagement-trade-barbs-at-hint-of-hostile-bid-shares-jump (reporting that a 14.6% stakeholder claimed the CEO was "not qualified" to lead the company).
83. See Sara Silver, Motorola Reaches Truce with Icahn, WALL ST. J., Apr. 8, 2008, at B3 (describing a deal by which 6.4% shareholder Icahn dropped his proxy battle against the Motorola board of directors in exchange for the ability to nominate two board positions).
84. See Keith J. Winstein, Biogen Considers a Sale; Pressure Comes from Icahn, WALL ST. J., Oct. 13-14, 2007, at A3 (describing 4% shareholder Icahn's $23 billion bid to purchase Biogen).
85. See Merissa Marr & Dionne Searcey, Comcast Holder Seeks CEO's Dismissal: Chieftan Targets Dual-Class Voting and Executive Pay, WALL ST. J., Jan. 18, 2008, at A8 (describing a 2% stockholder's demands for restructuring after Comcast stock fell 40% in one year).
86. See Kevin Kingsbury, H&R Block Holders Vote to Install Breeden Picks, WALL ST. J., Sept. 7, 2007, at C3 (observing that a substantial majority of the lagging company's shareholders voted to replace three board members).
87. See Tiffany Will Hear Ideas of Peltz Funds, N. Y. TIMES, Feb. 2, 2007, at C4 (signaling Tiffany & Co.'s willingness to cooperate with a majority-shareholder investment firm).
88. See Alcoa: JANA Partners LLC Calls on Alcoa's Board to Drop Alcan's Bid and Pursue Strategic Alternatives Including a Sale of the Company, REUTERS, May 8, 2007, http://www.reuters.com/article/idUSIN20070508142830AA20070508 (highlighting a hedge fund's activist attempts to influence corporate decisions).
89. See Pui-Wing Tam & Vauhini Vara, Activists Test Silicon Valley: Icahn Is Latest Investor Trying to Unlock Value in Technology Industry, WALL ST. J., Oct. 20-21, 2007, at B1 (describing hedge fund managers' increasing willingness to influence undervalued technology firms).
90. See Michael J. de la Merced, Hedge Funds Propose CSX Directors, Starting Proxy Battle, N. Y. TIMES, Dec. 20, 2007, at C2 (describing hedge funds' proposals of five alternate directors as yet one more example of a hostile maneuver);
91. Heidi N. Moore, En Garde, Activist Hedge Funds, WALL ST. J. DEAL J., Mar. 24, 2008, http://blogs.wsj.com/deals/2008/03/24/can-investment-bankstake-a- stand-against-activist-hedge-funds (describing a claim over swap agreements filed by CSX against two hedge funds).
92. See Gary McWilliams, Activists Circle Circuit City, WALL ST. J., Mar. 24, 2008, at C2 (forecasting changes in management due to activist hedge funds' increased control of Circuit City).
93. See Karey Wutkowski, Breeden Builds Up Stake in Jeweler Zale, REUTERS, Jan. 7, 2008, http://www.reuters.com/article/idUSN0740372120080108 (noting that activist-investor Breeden increased his holdings in Zale Corporation to 15.85%).
94. See Sarah Ellison, New York Times Holder Protest Grows, WALL ST. J., Apr. 25, 2007, at B10 (noting that a growing number of shareholders, led by money manager Morgan Stanley, withheld their votes from directors up for reelection as a sign of their dissatisfaction).
95. See Sprint Nextel Announces Appointment of Ralph Whitworth to Its Board of Directors, REUTERS, Feb. 12, 2008, http://www.reuters.com/article/ pressRelease/idUS145208+12-Feb-2008+BW20080212 (noting the appointment of a large stakeholder to the Sprint Nextel Board as an investment advisor).
96. Hedge Fund Activism, Possible Recession Will Play Roles in Upcoming Proxy Season, CORP. L. DAILY, Feb. 1, 2008 (on file with authors).
97. See supra notes 45, 48, 49, 53, 56-57, 59 and accompanying text.
98. Memorandum from Martin Lipton, Wachtell, Lipton, Rosen & Katz, to Clients 1 (Dec. 17, 2007) (on file with Texas Law Review).
99. Alan Murray, Hedge Funds Are New Sheriffs of Boardroom, WALL ST. J., Dec. 14, 2005, at A2.
100. See Jesse Eisinger, Memo to Activists: Mind CEO Pay, WALL ST. J., Jan. 11, 2006, at C1 ("The shareholder activists with the most clout these days are hedge-fund managers....").
101. See ALEXANDER INEICHEN & KURT SILBERSTEIN, AIMA'S ROADMAP TO HEDGE FUNDS 10 (2008), http://www.aima.org/en/knowledge-centre/education/aimas- roadmap-to-hedgefunds.cfm (estimating hedge fund assets to be between $1.8 and $4 trillion);
102. see also supra notes 26-28 and accompanying text.
103. Kahan & Rock, supra note 22, at 1046.
104. Hedge fund activism is continuing even after the recent financial crisis. See David Walker, Activist Hedge Funds Passively Rebound, WALL ST. J. (EUR.), Sept. 29, 2009, at 19 (chronicling activist hedge funds' gain of 29.23% in 2009 after dropping 30.81% in 2008);
105. see also Alistair Barr, Pershing Square to Fight Landry's Buyout, MARKET WATCH, Nov. 13, 2009, http://www.marketwatch.com/story/pershing-square-to-fight- landrys-buyout-2009-11-13-174800 (describing a major shareholder's successful opposition of an attempted buyout by Landry's founder).
106. See Kahan & Rock, supra note 22, at 1042-44 (describing the lower impact forms of activism traditionally favored by pension funds and mutual funds).
107. See infra notes 156-61 and accompanying text.
108. See PAUL LANGLEY, THE EVERYDAY LIFE OF GLOBAL FINANCE 122 (2008) (observing that even after a corporation becomes the target of an activist resolution, it is still common for the institutional investors to voice their concerns in private meetings with executives).
109. See Scott Barancik, OSI Buyout Down but Not Out, ST. PETERSBURG TIMES, May 9, 2007, at 1D (commenting on the trend of hedge fund managers who are also becoming more vocal critics of unfavorable deals);
110. Tom Lauricella, Mutual Funds Get Mad, WALL ST. J., Oct. 2, 2007, at R1 (profiling recent instances of mutual-fund managers "rabble-rousing" and taking action against companies in which they have a stake);
111. Tom Lauricella, Oppenheimer Revolt Shows Mutual Funds' New Mood, WALL ST. J., Apr. 11, 2007, at C1 [hereinafter Lauricella, Opphenheimer] (reporting that mutual funds are "borrowing a tactic from hedge funds... to publicly battle with companies they own");
112. John Laide, Investor Activism Against Mergers on the Rise, SHARKREPELLENT, Mar. 7, 2007, https://www.sharkrepellent.net/pub/rs-20070308. html (tracking major instances of activist shareholders opposing mergers in 2006).
113. Zachery Kouwe, Back in Play: Shareholder Outcry Revives Clear Channel LBO, N. Y. POST, May 8, 2007, at 47;
114. Sarah McBride & Dennis K. Berman, Clear Channel Is Asked to Reconsider Offer, WALL ST. J., May 7, 2007, at B12.
115. Jonathan Vuocolo, Laureate Accepts Sweetened Buyout Bid, WALL ST. J., June 5, 2007, at C3.
116. Barancik, supra note 85.
117. Richard Gibson, OSI Holders Clear Bid to Go Private, WALL ST. J., June 6, 2007, at C3.
118. Andrew Farrell, Icahn's Lear Bid Not Enough, Pzena Says, FORBES, July 9, 2007, http://www.forbes.com/2007/07/09/lear-icahn-update-markets-equity-cx-af- 0709markets20.html.
119. Lear Holders Reject Icahn's Buyout Bid, N. Y. TIMES, July 17, 2007, at C4.
120. Jon Kamp, New Buyout Offer for Biomet Is Now Sweeter and Tender, WALL ST. J., June 8, 2007, at C3.
121. McBride & Berman, supra note 86 (Clear Channel);
122. Susan Carey & Jonathan Vuocolo, Biomet Agrees to Be Acquired for $10.9 Billion, WALL ST. J., Dec. 19, 2006, at C4 (Biomet);
123. Michael J. de la Merced, Parent of Outback Steakhouse Is Sold in $3.2 Billion Deal, N. Y. TIMES, Nov. 7, 2006, at C2 (OSI Restaurant Partners);
124. Josee Valcourt, Lear Execs in Hot Seat After Deal Dies, DETROIT NEWS, July 17, 2007, at 1A (Lear);
125. Vuocolo, supra note 87 (Laureate Education).
126. See Sarah Ellison, Paper Chase: How a Money Manager Battled New York Times, WALL ST. J., Mar. 21, 2007, at A1 (covering a Morgan Stanley portfolio manager's campaign to reform the dual-class structure of the company, among other perceived problems).
127. Ellison, supra note 72.
128. Landon Thomas Jr., Shareholders of Times Co. Hold Out 42% of Board Vote, N. Y. TIMES, Apr. 25, 2007, at C5.
129. See Kaja Whitehouse, Morgan Stanley Buffs Activist Profile, WALL ST. J., Dec. 13, 2006, at C15 (publicizing speculation that "the decision to hire [the expert], combined with the efforts at the New York Times, suggests the Morgan Stanley unit may be growing more interested in shareholder activism").
130. See Christopher Young & Qin Tuminelli, A New World Order in M&A and Proxy Fights, in INSTITUTIONAL S'HOLDER SERVS., POSTSEASON REPORT 25, 25 (2006), http://www.riskmetrics.com/system/files/private/ 2006PostSeasonReportFINAL.pdf (relating that asset managers recently have taken the "first tentative steps toward activism").
131. Lauricella, Oppenheimer, supra note 85.
132. Id.
133. See David Reilly, Deutsche Boerse Drama Ends, WALL ST. J., May 24, 2005, at C14 (reporting on the joint opposition of Atticus Capital (a hedge fund) and Fidelity Investments (a mutual-fund investor) to the takeover of the London Stock Exchange).
134. See David P. Hamilton, Novartis Raises Chiron Bid, Virtually Sealing Deal, WALL ST. J., Apr. 4, 2006, at A2 (recording that CAM North America and Legg Mason (both mutual funds) and ValueAct Capital (a hedge fund) were investors of Chiron that opposed the takeover by Novartis).
135. See Theo Francis, MONY Holder, Resisting AXA, Suggests a New Chairman, CEO, WALL ST. J., Jan. 23, 2004, at C4 (noting that MONY's four largest shareholders, composed of mutual funds and hedge funds, opposed the acquisition by AXA, though they claimed not to be working together).
136. See Jeff Bennett & Mike Ramsey, Lear Accepts Carl Icahn's $2.8 Billion Cash Offer, BLOOMBERG, Feb. 9, 2007, http://www.bloomsberg.com/apps/ news?pid=20601087&refer=home& sid=alWGZxoz9GxU (noting opposition to Icahn's offer by Pzena (a hedge fund) and Brandes (a mutual fund)).
137. See Jason Singer, For VNU, a Shareholder Revolt May Lead to Its Sale or Breakup, WALL ST. J., Oct. 25, 2005, at A3 (reporting that a group of VNU shareholders including Fidelity Investments (a mutual fund) and Knight Vinke (a hedge fund) banded together to tell board members to abandon the friendly acquisition).
138. See Kahan & Rock, supra note 22, at 1045 (recounting the occasion in 2005 when Franklin Mutual Advisors (a mutual fund) and various hedge funds joined forces to bid jointly on Beverly Enterprises).
139. See Young & Tuminelli, supra note 98, at 27 (recalling a 2006 proxy fight where Carl Icahn led a gang of mutual funds and hedge funds to ultimately pressure Time Warner into making valuable concessions).
140. In the case of the failed takeover of the London Stock Exchange by Deutsche Börse, a London-based hedge fund manager was an early shareholder to rattle sabers-mutual funds like Fidelity Investments only followed the activist hedge funds' war cries weeks later. See David Reilly, Deutsche Boerse Faces Mounting Opposition to Its Bid for LSE, WALL ST. J., Feb. 28, 2005, at C4 (reporting that Fidelity Investments and Merrill Lynch investment managers jumped onto the activist bandwagon in late February);
141. Jason Singer et al., Fund Chief Fights Deutsche Boerse on Buyout Plan, WALL ST. J., Jan. 21, 2005, at C4 (profiling the crusade of Christopher Hohn of Children's Investment Fund Management to kill the ill-fated purchase since at least January of 2005).
142. See Don Jeffrey & Michael White, Take-Two Dissidents Win Control, Install New Chief, BLOOMBERG, Mar. 29, 2007, http://bloomberg.com/apps/news?pid= 20601087&src=mwm&sid=agdRA1p8Epzc (last updated Mar. 29, 2007) (reporting that Oppenheimer led other investors, including hedge funds, to force a change of CEO at Take-Two).
143. Marco Becht et al., Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes U. K. Focus Fund 13 (Eur. Corporate Governance Inst., Fin. Working Paper No. 138/2006, 2008), available at http://ssrn.com/ abstract=934712.
144. Id. at 14.
145. See id. at 41 (concluding that the Hermes U. K. Focus Fund's activism has created "substantial shareholder gains").
146. See Kahan & Rock, supra note 22, at 1043 (observing that institutional investors often engage in "passive activism" by taking heed of and supporting the proposals of co-investors).
147. See Marcel Kahan & Edward Rock, Hedge Fund Activism: The Case for Non-intervention, ADMIN. & REG. L. NEWS, Winter 2008, at 6 (stating that many public pension funds have invested in hedge funds).
148. See Randall S. Thomas, The Evolving Role of Institutional Investors in Corporate Governance and Corporate Litigation, 61 VAND. L. REV. 299, 312 (2008) (remarking that institutional investors have frequently supported hedge funds in their activism and noting that hedge funds generate value by being good stock pickers and by intervening in undervalued firms on behalf of shareholders).
149. Jim Manzi, Is Harvard Just a Tax Free Hedge Fund?, AM. SCENE, May 15, 2008, http://www.theamericanscene.com/2008/05/12/is-harvard-just-a-tax-free- hedge-fund.
150. See Tamara C. Belinfanti, The Proxy Advisory and Corporate Governance Industry: The Case for Increased Oversight and Control, 14 STAN. J. L. BUS. & FIN. 384, 393 (2009) (highlighting the sharp increase in the percentage of equity securities held by institutional investors and emphasizing that these investors are likely to receive voting advice from proxy advisors).
151. See id. at 385-86 (explaining that proxy advisors provide research and voting advice and citing a 2006 New York Times article reporting that the advice of the largest proxy advisor-Institutional Shareholder Services (ISS)-affects the decisions of professional investors controlling half the value of the world's common stock).
152. See THEODORE ROOSEVELT MALLOCH & SCOTT T. MASSEY, RENEWING AMERICAN CULTURE: THE PURSUIT OF HAPPINESS 170 (2006) (describing proxy advisory firms and noting that they "give advice to institutional shareholders on how to vote their stock").
153. David S. Hilzenrath, Investor Advisor ISS Is Sold to RiskMetrics, WASH. POST, Nov. 2, 2006, at D1.
154. Dennis K. Berman & Joann S. Lublin, Advisor ISS Puts Itself on Sale, Could Fetch Up to $500 Million, WALL ST. J., Sept. 6, 2006, at C4.
155. See Robert D. Hershey, A Little Industry with a Lot of Sway on Proxy Votes, N. Y. TIMES, Jan. 18, 2006, § 3, at 6 (describing proxy advisors generally as wielding extraordinary influence and identifying ISS as the most prominent advisory firm).
156. John Goff, Who's the Boss?, CFO MAG., Sept. 1, 2004, http://www.cfo.com/ article.cfm/3127506?f=singlepage.
157. Leo E. Strine, Jr., The Delaware Way, 30 DEL. J. CORP. L. 673, 688 (2005).
158. Jie Cai et al., Electing Directors, 64 J. FIN. 2389, 2404 (2009).
159. Jennifer E. Bethel & Stuart L. Gillan, The Impact of the Institutional and Regulatory Environment on Shareholder Voting, FIN. MGMT., Winter 2002, at 29, 30.
160. Is ISS Too Powerful? And Whose Interests Does It Serve?, Posting of William J. Holstein to Corner Office, http://blogs.bnet.com/ceo/?p=1100 (Feb. 7, 2008, 8:03 EST).
161. See Hershey, supra note 122 (describing ISS's influence on the governance decisions of professional investors who control $25 trillion in assets).
162. Is ISS Too Powerful? And Whose Interests Does It Serve?, supra note 127.
163. Martin Lipton, Some Thoughts for Boards of Directors in 2008, BRIEFLY, Jan. 2008, at 1.
164. The data reflected in this figure were gathered by conducting a search on Westlaw for articles mentioning ISS, RiskMetrics, or Glass Lewis within ten words of shareholder and either powerful, clout, or influential. The data for 2009 include results through June 10.
165. Stephen Choi, Jill Fisch & Marcel Kahan, The Power of Proxy Advisors: Myth or Reality?, 59 EMORY L. J. (forthcoming 2010).
166. See James F. Cotter et al., ISS Recommendations and Mutual Fund Voting on Proxy Proposals, 50 VILL. L. REV. (forthcoming 2010) (manuscript at 107, on file with Texas Law Review) (finding that mutual-fund votes correspond more closely to ISS recommendations than to management recommendations).
167. See Thuy-Nga T. Vo, Rating Management Behavior and Ethics: A Proposal to Upgrade the Corporate Governance Rating Criteria, 34 J. CORP. L. 1, 8 (2008) ("The increasing concentration of stock ownership in the hands of institutional investors, and the interest of these institutional investors in the governance of public companies, have also fueled the need for information about corporate governance practices.").
168. See id. at 11-13 (describing how public companies are now required by the Sarbanes-Oxley Act to have audit committees composed of independent directors and how the ratings systems used by major advisory services reflect generally accepted views of strong governance).
169. See id. at 13 (arguing that companies are increasingly assigning separate individuals to the board-chair and CEO positions despite the absence of a legal duty to do so in order to enhance the board's role as an independent monitor of management's performance).
170. See, e.g., Lucian Arye Bebchuk et al., The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy, 54 STAN. L. REV. 887, 890 (2002) (commenting that a staggered board "offers a more powerful antitakeover defense than has previously been recognized" and suggesting that the staggered board's power as a takeover prevention tool may warrant changes in takeover regulation and in general takeover doctrine).
171. Id. at 912.
172. Id. at 899.
173. See Bernard Black & Reinier Kraakman, Delaware's Takeover Law: The Uncertain Search for Hidden Value, 96 NW. U. L. REV. 521, 561 (2002) (suggesting that courts should review staggered board terms because "[n]either the finance literature nor the norms of corporate law support vesting such unbalanced power in the hands of the board");
174. see also Bebchuk et al., supra note 137, at 949 (indicating that shareholders should not be permitted to adopt an anti-takeover device, such as staggered boards, that does not allow for a one-time up-or-down referendum on acquisition offers).
175. Bebchuk et al., supra note 137, at 900.
176. This was largely true until 2003. See Jennifer Levitz, Getting the Message, WALL ST. J., Oct. 9, 2006, at R6 (showing that virtually all shareholder resolutions that received majority support were ignored prior to 2003).
177. STANDARD & POORS, S&P 100, at 1 (2008), www2.standardandpoors. com/spf/pdf/index/SP-100-Factsheet.pdf.
178. Of the sixteen companies that still had staggered boards in place for 2008, one had a "noneffective" staggered board (which is not regarded as a forceful anti-takeover mechanism), and the boards of two others had, since 2003, proposed charter amendments to destagger that failed to get the requisite (supermajority) shareholder approval.
179. See Jared A. Favole, Big Firms Increasingly Declassify Boards, WALL ST. J., Jan. 10, 2007, at B2 (noting that in 2006 S&P 500 companies were the first group, ahead of small and midcap companies, to surpass the 50% mark for having declassified boards).
180. See BusinessRoundtable.org, About Us, http://www.businessroundtable.org/ about (detailing the influence CEOs from leading U. S.companies have on the association and noting that member companies "comprise nearly a third of the total value of the U. S. stock markets and pay more than 60 percent of all corporate income taxes paid to the federal government").
181. See SharkRepellent.net, S&P 1500 Classified Boards at Year End (2009) (on file with Texas Law Review) (reporting the number of classified boards in S&P 400, 500, and 600 companies from 1998 to 2009).
182. See Annalisa Barrett & Beth Young, Majority of Votes Withheld: Shareholders Say "No", Boards Say "Yes", 16 CORP. GOVERNANCE ADVISOR 6, 6 (2008) (discussing the shift from plurality to majority voting as it relates to withheld votes);
183. CLAUDIA H. ALLEN, NEAL, GERBER & EISENBERG, LLP, STUDY OF MAJORITY VOTING IN DIRECTOR ELECTIONS, at ii (2007), http://www.ngelaw.com/files/upload/
184. See Allen, supra note 148, at ii ("A nominee in an election to be decided by a plurality could theoretically be elected with as little as one vote, thereby ensuring that, in an uncontested election, nominees slated by a board will be elected and that board seats will not be left vacant.").
185. Two as a result of state law, five due to charter or bylaw provisions, and three for unknown reasons.
186. Majority voting is not well defined for cumulative voting.
187. See ALLEN, supra note 148, at i (highlighting the increase in S&P 500 majority voting from 16% to 66% in the period from February 2006 to November 2007). Companies that have adopted majority voting differ in whether they have done so through a bylaw amendment, which usually specifies that a director who receives more "withhold" or "against" votes than "for" votes is not elected, or through corporate-governance guidelines requiring a director to tender her resignation if she receives more "withhold" or "against" votes than "for" votes.
188. Id. at ii-iii, ix. Delaware law was recently changed to clarify that a resignation conditional on not receiving a specified vote can provide that it is irrevocable.
189. DEL. CODE ANN. tit. 8, § 141 (b) (2009). The distinction between these two variants, however, is not large. Even if the director is not elected, the remaining board members could, if they wanted to, fill the resulting vacancy with the very director who failed to receive the requisite shareholder vote. Directors, of course, will be reluctant to do so, but they will be equally reluctant to reject the resignation of a director who received more votes "against" than "for." In any case, most recent moves to majority voting are via bylaw amendments, and many companies that had initially adopted corporate-governance guidelines have subsequently adopted a bylaw.
190. ALLEN, supra note 148, at ii, ix, fig.1.
191. Lipton, supra note 130, at 4.
192. See Vincent Falcone, Note, Majority Voting in Director Elections: A Simple, Direct, and Swift Solution?, 2007 COLUM. BUS. L. REV. 844, 853-55 (2007) (describing the widespread success of the majority-voting movement).
193. 17 C. F. R. § 240. 14a-8 (2008).
194. Roberta Romano, Less Is More: Making Institutional Investor Activism a Valuable Mechanism of Corporate Governance, 18 YALE J. ON REG. 174, 177 (2001).
195. We considered a resolution adopted if it received more votes in favor than the combined votes against and abstentions (including broker no-votes). This appears to be the standard used by most companies.
196. See DEL. CODE ANN. tit. 8, § 216 (2) (2001 & Supp. 2008) ("In all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders.").
197. Georgeson, Research, http://www.georgesonshareholder.com/emea/resources- research. php. Prior to 2001, Georgeson had also prepared such a report, but analyzed only corporategovernance proposals made by institutional investors.
198. Id.
199. Id.
200. The data reflected in this table was gathered from Georgeson's Annual Corporate Reviews.
201. Id. For each adopted resolution, we conducted research to see whether it was implemented or ignored over the next year.
202. For another study on shareholder resolutions arriving at similar conclusions, see Randall S. Thomas & James F. Cotter, Shareholder Proposals in the New Millennium: Shareholder Support, Board Response, and Market Reaction, 13 J. CORP. FIN. 368, 369 (2007).
203. 17 C. F. R. §§ 240, 249 (1992).
204. Catherine M. Daily et al., Corporate Governance: Decades of Dialogue and Data, 28 ACAD. MGMT. REV. 371, 376 (2003).
205. See supra Part III.
206. 17 C. F. R. § 240. 14a-3 (2009).
207. See id. § 240. 14a-1 (l) (defining solicitation to include any communication reasonably calculated to result in the procurement or withholding of a proxy).
208. Daily et al., supra note 163, at 376.
209. See Lucian Ayre Bebchuk & Marcel Kahan, A Framework for Analyzing Legal Policy Towards Proxy Contests, 78 CAL. L. REV. 1071, 1075 (1990) (explaining that by 1990 proxy contests were becoming the takeover method of choice for large shareholders).
210. 17 C. F. R. § 240. 14a-2 (b) (1).
211. Id. § 240. 14a-6 (g) (2).
212. Id. § 240. 14a-4.
213. See John C. Coffee, Jr., The SEC and the Institutional Investor: A Half-Time Report, 15 CARDOZO L. REV. 837, 840 n. 17 (1994) (describing how 14a-2 (b) (1) 's safe harbor was designed to encourage broad communication among shareholders, particularly institutional investors).
214. See Lisa M. Fairfax, The Future of Shareholder Democracy, 84 IND. L. J. 1259, 1290 (2009) (noting that since 2004 there has been a dramatic increase in majority vote shareholder proposals to be included on corporations' proxy statements). Prior to 2004, Georgeson did not keep track of "other activist events" where dissidents did not distribute a separate proxy card, indicating that such solicitations were rare.
215. See supra subpart III (C).
216. See supra notes 155-72 and accompanying text.
217. See CSX Corp. v. Children's Inv. Fund Mgmt., 562 F. Supp. 2d 511, 552 (S. D. N. Y. 2008) (discussing when hedge funds are deemed to have formed a group for § 13 (d) purposes).
218. Kara Scannell, 'Broker Votes': Opponents May Win One, WALL ST. J., June 13, 2007, at C1. The term "just vote no" goes back to Joe Grundfest, who had proposed such a strategy in a 1993 article.
219. Joseph A. Grundfest, Just Vote No: A Minimalist Strategy for Dealing with Barbarians Inside the Gates, 45 STAN. L. REV. 857, 927 (1993).
220. See Fairfax, supra note 173, at 1289 (stating that the 2004 director elections for Disney and Federated Department Stores, Inc. represent the two elections with the most withheld votes "in recent history").
221. See supra notes 137-63 and accompanying text.
222. See Bebchuk et al., supra note 137, at 893 ("In a company with a staggered board, directors are grouped into classes (typically three), with each class elected at successive annual meetings.... With three classes, directors in each class would be elected to three-year terms.").
223. See Fairfax, supra note 173, at 1288-89 (explaining the effectiveness of a withhold-thevote campaign in both majority and plurality systems).
224. NYSE, Inc., Listed Company Manual § 452 (2003).
225. See Marcel Kahan & Edward Rock, The Hanging Chads of Corporate Voting, 96 GEO. L. J. 1227, 1250 (2008) (explaining how a failure to vote has a unique impact when mediated through a broker).
226. See Scannell, supra note 177 ("Brokers generally vote for management, partly, they say, because if clients wanted them to oppose management they would let them know.").
227. Id.
228. Id.
229. See SEC Hears Testimony on Broker Votes, Posting of Ted Allen to RiskMetrics Group, http://blog.riskmetrics.com/gov/2007/05/sec-hears-testimony- on-broker-votessubmitted-by-tedallen-director-of-publications.html (May 24, 2007, 10:58 EST) ("While most institutions now vote their shares or give voting instructions, only 30 to 40 percent of retail investors bother to vote their shares.").
230. See supra subpart III (A).
231. See Scannell, supra note 177 (reporting that Goldman Sachs, Merrill Lynch, and Morgan Stanley voted proportionally in the 2007 season and that Charles Schwab has done so since 2005).
232. See PROXY WORKING GROUP TO THE N. Y. STOCK EXCH., REPORT AND RECOMMENDATIONS OF THE PROXY WORKING GROUP TO THE NEW YORK STOCK EXCHANGE 3-4 (2006), http://www.nyse.com/pdfs/PWG-REPORT.pdf ("[T]he election of directors can no longer be considered a 'routine' event in the life of a corporation. ").
233. 15 U. S. C. § 78s (b) (1) (2006) ("No proposed rule change shall take effect unless approved by the Commission or otherwise permitted in accordance with the provisions of this subsection. ").
234. Notice of Proposed Rule Change to Amend NYSE Rule 452 and Eliminate Broker Discretionary Voting for the Election of Directors, Exchange Act Release No. 59, 464, 95 SEC Docket 744 (Feb. 26, 2009).
235. See Melissa Aguilar, SEC Approves NYSE Broker Vote Ban in Director Elections, COMPLIANCE WK., July 1, 2009, http://complianceweek.com/blog/aguilar/ 2009/07/01/secapproves-nyse-broker-vote-ban-in-director-elections/(reporting the SEC's approval of the proposed rule, its effective date, and its likely effects).
236. See SEC Hears Testimony on Broker Votes, supra note 187 (attributing this figure to Broadridge Financial).
237. The exact percentage of instructed shares is a function of both the percentage of broker no votes and the overall percentage voting. With a broker no-vote percentage of 19% and 100% voting, activists need to get 62% of the instructed shares to get a majority. With a broker no-vote percentage of 19% and 80% voting, activists need to get 66% of the instructed shares to get a majority.
238. For background and a similar point regarding notice and access as compared with issuer proxy access, see Jeffrey N. Gordon, Proxy Contests in an Era of Increasing Shareholder Power: Forget Issuer Proxy Access and Focus on E-Proxy, 61 VAND. L. REV. 475, 487 (2008).
239. See 17 C. F. R. § 240. 14a-16 (2009) (dictating the requirements for making proxy statements available on the Internet). Moreover, as of 2008, large accelerated filers and, as of 2009, everyone else, are required to post materials on a Web site.
240. Internet Availability of Proxy Materials, Exchange Act Release No. 52, 926, 86 SEC Docket 2145 (Dec. 8, 2005).
241. See Fairfax, supra note 173, at 1285-86 (observing that e-proxy rules give individual shareholders more control since shareholders are able to "control both the content of the proxy statement and the solicitation process").
242. See supra notes 169-80 and accompanying text.
243. See 17 C. F. R. § 240. 14a-2 (b) (1) (stating that the exemption does not apply to nominees for the board of directors and persons acting on their behalf). Moreover, it is practically impossible to get a dissident elected without distributing one's own proxy cards.
244. See Stephen Taub, Dissidents Win Proxy Fight, Without Proxy, COMPLIANCE WK., Apr. 10, 2007, http://www.complianceweek.com/article/3253?printable=1 (noting how rare it is for dissidents to win proxy fights without proxy materials, especially at large companies).
245. Other campaigns that cannot be effectively conducted under Rule 14a-2 (b) relate to campaigns by shareholders who must file a Schedule 13D (mostly 5% shareholders with an activist agenda), campaigns in favor of shareholder resolutions that the company excluded from its proxy statement under Rule 14a-8, or campaigns where for strategic reasons the proponents want to distribute their own proxy forms. 17 C. F. R. §§ 240. 14a-2 (b) (1), 240.14a-8. Note that campaigns related to mergers, which are not covered by the 14a-2 (b) exemption are also not subject to the notice and access rule.
246. Id. § 240. 14a-16 (m).
247. See Andrew R. Sorkin, Enough Anger to Make Ketchup Boil: Raider in a Bruising Fight with Heinz, N. Y. TIMES, July 27, 2006, at C1 (describing Trian's strategy in its fight for control of Heinz's board and noting that Heinz's shares had risen 20% since Trian publicly announced its campaign).
248. Trian estimated that its total expenses in conducting the proxy contest would be $7 million. THE TRIAN GROUP, PROXY STATEMENT 27 (2006). In our estimate, the printing and mailing costs of the proxy statement do not amount to a significant portion of these expenses.
249. See GEORGESON, ANNUAL CORPORATE GOVERNANCE REVIEW 48 (2007), http://www.georgesonshareholder.com/emea/research/4a) %20US%20Corp%20Gov%202007. pdf [hereinafter 2007 ANNUAL CORPORATE GOVERNANCE REVIEW] (listing thirteen other activist campaigns).
250. See "Just Vote No" Campaigns in Uncontested Director Elections-Renewed Vitality for the 2010 Proxy Season, Client Memorandum from Wilkie, Farr, and Gallagher 1 (Sept. 24, 2009) (on file with authors) (hypothesizing that the low-cost "just vote no" campaigns are likely to be widely used by institutional investors, possibly even as an alternative to "short slate" proxy contests).
251. See Corporate Governance: A Seismic Shift in the Mechanics of Electing Directors, Client Memorandum from David A. Katz & Laura A. McIntosh, Wachtell, Lipton, Rosen & Katz n. 20 (July 27, 2006) (noting that, in the authors' experience, mailing costs are a substantial part of the dissidents' cost in a proxy fight).
252. DIV. OF CORP. FIN., SEC, STAFF REPORT: REVIEW OF THE PROXY PROCESS REGARDING THE NOMINATION AND ELECTION OF DIRECTORS 1-2 (2003).
253. Id. at 1, 5.
254. Id. at 2-3, 5.
255. Security Holder Director Nominations, 68 Fed. Reg. 60, 790 (proposed Oct. 23, 2003)
256. (to be codified at 17 C. F. R. pts. 240, 249, 274).
257. Id. at 60, 794.
258. Id.
259. See Jonathan Peterson, SEC Offers Conflicting Shareholder Proposals, L. A. TIMES, July 26, 2007, at 3 (stating that Chairman Donaldson and the SEC's Democratic commissioners supported the SEC's 2003 proposal).
260. See Bill Baue, Opening Up Pandora's Box: SEC Proxy Roundtable Questions Role of Non-binding Resolutions, SOCIALFUNDS, May 15, 2007, http://www. socialfunds.com/news/article.cgi/2293.html ("The SEC allowed the rule it proposed in October 2003, allowing shareowners proxy access to nominate directors in certain circumstance, to die on the vine due to opposition by the Business Roundtable and the US Chamber of Commerce, which threatened a lawsuit.").
261. See Stephen Labaton, S. E. C. Rebuffs Investors on Board Votes, N. Y. TIMES, Feb. 8, 2005, at C2 (explaining that Donaldson "no longer supported the proposal put forward by the commission in 2003").
262. Stephen Labaton, Donaldson Announces Resignation as S. E. C. Chairman, N. Y. TIMES, June 1, 2005, available at http://www.nytimes.com/2005/06/01/ business/01wiresec.html?ex=1275278400&en=d89d9d8be5440394&ei= 5090&partner=rssuserland&emc=rs.
263. Id.
264. See supra notes 148-63 and accompanying text.
265. For a similar opinion, see Rachel McTague, Grundfest: Proxy Access Unnecessary in View of Issuers' Shift to Majority Voting, CORP. L. DAILY, Nov. 19, 2007, http://corplawcenter.bna.com/pic2/clb.nsf/id/BNAP-78ZV9X?OpenDocument.
266. See Louis M. Thompson, Jr., Shareholder Democracy to March On in '07, COMPLIANCE WK., Nov. 21, 2006, http://www.complianceweek.com/article/2935/ shareholder-democracy-tomarch-on-in-07 (comparing the power to remove directors under the "majority-voting concept" with proxy access for director nominations). With the change in NYSE rules eliminating discretionary broker votes in director elections, another distinction between proxy access and majority voting will be eliminated. With proxy access, a vote of directors where shareholders nominated a competing slate would not have been viewed as routine, and brokers would not have discretionary voting power.
267. See David A. Cifrino et al., SEC Eliminates Broker Discretionary Voting in Director Elections, Proposes Changes to Disclosure & Other Requirements Regarding Corporate Governance & Compensation, MCDERMOTT NEWLS., July 6, 2009, http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object-id/ a89585fc-a483-4fed-9358-7cccf7b00616.cfm (explaining that, in the current system, "elections are already considered 'non-routine' matters on which discretionary voting is not allowed"). With the new NYSE rules, brokers do not have discretionary voting power in regular elections either.
268. See id. (explaining that the change "eliminates 'discretionary voting' for all director elections").
269. AFSCME v. AIG, 462 F.3d 121, 123-24 (2d Cir. 2006).
270. Id. at 124.
271. See id. at 129 (upbraiding the SEC for failing to acknowledge its changed position regarding the excludability of proxy-access bylaw proposals and for failing to offer a reasoned basis for the change).
272. Press Release, SEC, Commission Calendars Proposed Amendment to Rule 14a-8 Governing Director Nominations by Shareholders (Sept. 7, 2006), available at http://www.sec.gov/news/press/2006/2006-150.htm) (last modified Sept. 7, 2006.
273. Since October 2006, the SEC has delayed scheduled consideration of proxy access at least twice. See Atkins Says SEC Roundtable Likely on Proxy Access Issue; Time Not Yet Set, 39 Sec. Reg. & L. Rep. (BNA) No. 11, at 379 (Mar. 12, 2007). In the meantime, there has been no groundswell of shareholder proposals resembling AFSCME's in the 2007 season-a fact quite consistent with our view that majority voting (and, to a lesser extent, notice and access) has made the fate of the proxy-access rule largely irrelevant.
274. Stephen Labaton, A Public Airing for Proposals on Shareholders, N. Y. TIMES, July 26, 2007, at C3.
275. See Nicholas Rummell, SEC Splits Proxy Access Votes as Cox Says 'Yea' to Two Proposals, FIN. WK., July 25, 2007, http://www.financialweek.com/apps/pbcs. dll/article?AID=/20070725/REG/70725013/1036 (describing how the first proposal would allow shareholders to put forth proxy proposals calling for bylaw changes to allow shareholder-approved directors during corporate elections and how the second would restate the SEC's position prior to the Second Circuit's invalidation).
276. The SEC Denies Proxy Access, Posting of L. Reed Walton to RiskMetrics Group, http://blog.riskmetrics.com/gov/2007/11/the-sec-denies-proxy- accesssubmitted-by-l-reed-waltonpublications.html (Nov. 30, 2007, 10:33 EST).
277. Georgeson Inc. & Latham & Watkins LLP, Proxy Access Proposed Rules Published by SEC, CORP. GOVERNANCE COMMENT., June 15, 2009, http://www.georgeson.com/usa/download/corp-gov-commentary.html.
278. Mary Schapiro, Chairman, SEC, Address to the Practising Law Institute's 41st Annual Institute on Securities Regulation (Nov. 4, 2009) (on file at http://sec.gov/news/speech/2009/spch110409mls.htm).
279. Goodwin Procter, SEC Approves Final NYSE and Nasdaq Corporate Governance Standards, PUB. CO. ADVISORY, Nov. 11, 2003, at 1, http://www.goodwinprocter. com/~/media/Files/Publications/Newsletters/Public Company Advisory/2003/SEC- Approves-Final-NYSE-and-Nasdaq-Corporate-Governance-Standards.ashx.
280. Boards of certain controlled companies are exempt. NYSE, Inc., Listed Company Manual § 303A.0 (2003) ("A listed company of which more than 50% of the voting power is held by an individual, a group or another company need not comply.").
281. NASDAQ, Inc., Rule 5605 (b) (1); NYSE, Inc., Listed Company Manual § 303A.01-.02.
282. NASDAQ, Inc., Rule 5605 (c) (2) (A); NYSE, Inc., Listed Company Manual § 303A.07 (b).
283. NASDAQ, Inc., Rule 5605 (b) (2); NYSE, Inc., Listed Company Manual § 303A.03.
284. NYSE, Inc., Listed Company Manual § 303A.04-.05.
285. NASDAQ, Inc., Rule 5605 (d) - (e). The NASDAQ rules do not address the composition of any separate corporate-governance committee.
286. Goodwin Procter, SEC Expected to Approve Final Nasdaq Corporate Governance Standards, PUB. CO. ADVISORY, Oct. 21, 2003, http://www. goodwinprocter.com/~/media/Files/Publications/Newsletters/Public Company Advisory/2003/SEC-Expected-to-Approve-Final-Nasdaq-Corporate-Governance- Standards.ashx.
287. 15 U. S. C. § 78j-1 (2006).
288. Jeffrey N. Gordon, The Rise of Independent Directors in the United States, 1950-2005: Of Shareholder Value and Stock Market Prices, 59 STAN. L. REV. 1465, 1468 (2007).
289. See id. at 1473-75 (presenting a methodology and graphical data demonstrating the trend from insider to independent directors).
290. KORN/FERRY INT'L, 32ND ANNUAL BOARD OF DIRECTORS STUDY 36 (2007)
291. [hereinafter 32ND ANNUAL BOARD OF DIRECTORS STUDY], available at http://www.kornferry.com/Library/ViewGallery.asp?CID=1573&LanguageID= 1&RegionID=23.
292. IRRC Legacy Directors Database, Overview of IRRC Directors in WRDS, http://wrdsweb.wharton. upenn.edu/wrds/support/Data/- 001Manuals%20and%20Overviews/-115RiskMetrics/ Overview%20of%20IRRC%20Legacy%20Directors%20Database%20on%20WRDS.cfm.
293. KORN/FERRY INT'L, 33RD ANNUAL BOARD OF DIRECTORS STUDY 13 tbl. D (2006)
294. [hereinafter 33RD ANNUAL BOARD OF DIRECTORS STUDY], available at http://www.korn ferry.com/Publication/3322.
295. IRRC Legacy Directors Database, supra note 243.
296. Of companies participating in the Korn/Ferry survey, 100% had audit and 99% had compensation committees by 1995. 33RD ANNUAL BOARD OF DIRECTORS STUDY, supra note 244, at 12 tbl. C.
297. Id.
298. KORN/FERRY INT'L, 34TH ANNUAL BOARD OF DIRECTORS STUDY 18 tbl. C (2007)
299. [hereinafter 34TH ANNUAL BOARD OF DIRECTORS STUDY], available at http://www.kornferry institute.com/leadership/board-of-directors/publication/ 1225/34th-Annual-Board-of-Directors-St udy.
300. See James S. Linck et al., The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors, 22 REV. FIN. STUD. 3287, 3288 (2009), available at http://rfs.oxfordjournals.org/cgi/reprint/22/8/ 3287.pdf ("[C]hanges in boards and directors have been occurring for some time.");
301. see also id. at 3292 (enumerating the recently mandated "major governance provisions").
302. 34TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 248, at 18 tbl. C.
303. The only other committees included in the Korn/Ferry data but not included in Figure 2 or 3 are the "Corporate Responsibility" committee, which experienced a slight decline, and the "Director Compensation" committee, which experienced a major increase.
304. Id.
305. KORN/FERRY INT'L, 30TH ANNUAL BOARD OF DIRECTORS STUDY 13 tbl. F (2003)
306. [hereinafter 30TH ANNUAL BOARD OF DIRECTORS STUDY], available at http://www.kornferry institute.com/about-us/thought-leadership-library/ publication/1492/30th-Annual-Board-of-Direct ors-Study;
307. 34TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 248, at 19 tbl. E.
308. 30TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 252, at 13 tbl. F;
309. 34TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 248, at 19 tbl. E.
310. Because information for 2001 was not available for some committees, we interpolated the figures for 2000 and 2002.
311. 30TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 252, at 15 tbl.1;
312. 34TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 248, at 21 tbl. H.
313. 34TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 248, at 21 tbl. H.
314. Id. at tbls. H-I. Another fact of perhaps symbolic significance: between 1996 and 2002, the highest average retainer (usually by a large margin) was paid to the chair of the executive committee, traditionally the CEO. By 2005, the average retainer of the chair of the executive committee was less than the retainer for the chair of each of the five committees with monitoring tasks.
315. Id. at tbl. I.
316. The figure is based on cash retainer for committee chair. All amounts are adjusted for inflation. Other monitoring committees are compensation, nominating, corporate governance, and succession. Management committees are executive, finance, and investment.
317. See 30TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 252, at 24;
318. 32ND ANNUAL BOARD OF DIRECTORS STUDY, supra note 242, at 53;
319. 33RD ANNUAL BOARD OF DIRECTORS STUDY, supra note 244, at 23;
320. 34TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 248, at 34.
321. 32ND ANNUAL BOARD OF DIRECTORS STUDY, supra note 242, at 53.
322. Kaja Whitehouse, Move Over CEO: Here Come the Directors, WALL ST. J., Oct. 9, 2006, at R1;
323. see also Lipton, supra note 130, at 7 (discussing increased demand by public pension funds and other activists to meet with independent directors).
324. Whitehouse, supra note 261.
325. NASDAQ, Inc., Rule 5605 (b) (2); NYSE, Inc., Listed Company Manual § 303A.03 (2003).
326. George Anders, Private Time, WALL ST. J., Oct. 9, 2006, at R4.
327. 30TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 252, at 22;
328. 32ND ANNUAL BOARD OF DIRECTORS STUDY, supra note 242, at 22, 63;
329. 33RD ANNUAL BOARD OF DIRECTORS STUDY, supra note 244, at 9;
330. 34TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 248, at 12 chart D.
331. 32ND ANNUAL BOARD OF DIRECTORS STUDY, supra note 242, at 54;
332. 34TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 248, at 7.
333. BUS. ROUNDTABLE, BUSINESS ROUNDTABLE CORPORATE GOVERNANCE SURVEY KEY FINDINGS (2007).
334. See supra note 235 and accompanying text.
335. 30TH ANNUAL BOARD OF DIRECTORS STUDY, supra note 252, at 20;
336. 33RD ANNUAL BOARD OF DIRECTORS STUDY, supra note 244, at 24.
337. Lipton, supra note 130, at 17.
338. BUS. ROUNDTABLE, supra note 267.
339. Memorandum from Martin Lipton, Wachtell, Lipton, Rosen & Katz, to Clients 1 (Dec. 6, 2006) (on file with Texas Law Review).
340. Memorandum from Martin Lipton, supra note 76, at 1.
341. Chuck Lucier et al., The Era of the Inclusive Leader, STRATEGY + BUS., Summer 2007, at 2.
342. Id.
343. Id. at 3.
344. Id.
345. Id.
346. Steven N. Kaplan & Bernadette A. Minton, How Has CEO Turnover Changed? 1 (Aug. 2008) (unpublished manuscript, on file at http://faculty. chicagobooth.edu/steven. kaplan/research/km.pdf).
347. Id. at 2.
348. Id. at 4.
349. See id. at 4 (explaining boards' broader and more immediate responses to poor market performance as well as poor industry performance).
350. Kaplan & Minton, supra note 279, at 1. Our analysis results in a 19.8% internal takeover rate for this period, as opposed to the 12.6% rate found from 1998-2005. Our study's rate covers two years, meaning that the rate per year is about half-less than Kaplan and Minton's reported annualized rate.
351. See Michael Mandel, Mr. Risk Goes to Washington, BUS. WEEK, June 12, 2006, http://www.businessweek.com/magazine/content/06-24/b3988001.htm (describing Henry Paulson's resignation as CEO of Goldman Sachs Group in order to serve as Secretary of the Treasury).
352. See Lucier et al., supra note 274, at 3 (stating that nearly one in three CEOs left involuntarily in 2006).
353. It is possible that the increased turnover is exclusively due to other factors, such as more attractive severance packages for CEOs.
354. See generally Kenneth A. Borokhovich et al., Outside Directors and CEO Selection, 31 J. FIN. & QUANTITATIVE ANALYSIS 337 (discussing the role of outsiders in the selection of a new CEO).
355. Executive Compensation and Related Person Disclosure, Exchange Act Release No. 8, 732A, 71 Fed. Reg. 53, 158 (Sept. 8, 2006).
356. 17 C. F. R. § 229. 402 (b) (2009).
357. Id. § 229. 402 (a) (6) (iv), (d) (2) (ii).
358. Id. § 229. 402 (c) (2).
359. See Lucian Arye Bebchuk et al., Managerial Power and Rent Extraction in the Design of Executive Compensation 39-42 (Nat'l Bureau of Econ. Research, Working Paper No. 9068, 2002) (arguing that companies are trying to camouflage compensation paid to executives as options).
360. Kathryn Yeaton, The SEC's New Rules on Executive Compensation, CPA J., July 2007, at 26, 29.
361. Gen. Elec. Corp., Notice of 2006 Annual Meeting and Proxy Statement (Schedule 14A), at 28-29, 34-35 (Mar. 3, 2006).
362. Gen. Elec. Corp., Notice of 2007 Annual Meeting and Proxy Statement (Schedule 14A), at 21 (Feb. 27, 2007).
363. See Malini Manickavasagam, Shareholder Proposals: Annual Meeting Voting Compels More Accountability, 11 BNA CORP. GOV. REP. 30 (2008) (listing "say on pay" as one of top three issues on corporate ballots for 2008).
364. Sandeep Gopalan, Say on Pay and the SEC Disclosure Rules: Expressive Law and CEO Compensation, 35 PEPP. L. REV. 207, 220-21 (2008).
365. See 7 C. F. R. § 229. 402 (c) (2) (2009) (requiring corporations to report dollar amounts in a number of categories);
366. Bebchuk et al., supra note 292, at 39-42 (discussing the use of options as a means of camouflaging executive compensation).
367. See Whitehouse, supra note 261 (observing that if shareholders make enough of an impact, directors will respond).
368. Lipton, supra note 130, at 8.
369. See Proposals on Policy for 'Advisory' Votes Regarding Executive Pay Not Excludable, 39 Sec. Reg. & L. Rep. (BNA) No. 9, at 370 (Mar. 5, 2007) (reviewing three separate no-action responses in which the staff of the Division of Corporate Finance advised AT&T Inc., Qwest Communications International Inc., and Clear Channel Communications Inc. respectively that they may not exclude proposals that the board adopt policies allowing shareholders to cast "advisory" votes on executive compensation from proxy materials for upcoming shareholder meetings).
370. See Companies Ignore 'Say on Pay' Votes, DIRECTORSHIP, July 23, 2008, http://www.directorship.com/companies-ignore-say-on-pay-votes (reporting seventy-six proposals so far in 2008);
371. RISKMETRICS GROUP, POSTSEASON REPORT 8 (2007), http://www.riskmetrics. com/system/files/private/2007PostSeasonReportFINAL.pdf [hereinafter 2007 POSTSEASON REPORT] (comparing the forty "say on pay" proposals that were voted on between January 1, 2007, and June 30, 2007, with the seven proposals voted on in 2006);
372. id. at 6 (illustrating in chart one the fact that in 2005 there were zero votes on proposals to give shareholders an advisory vote on executive compensation).
373. See 2007 POSTSEASON REPORT, supra note 302, at 6 (observing that shareholders' say on pay proposals outnumbered eleven other types of proposals in 2007).
374. See GEORGESON, ANNUAL CORPORATE GOVERNANCE REVIEW 1 8 (2004), http://www.georgesonshareholder.com/usa/download/acgr/acgr2004.pdf [hereinafter 2004 ANNUAL CORPORATE GOVERNANCE REVIEW] (listing a single proposal to "approve executive compensation" in 2004);
375. GEORGESON, ANNUAL CORPORATE GOVERNANCE REVIEW #=p5 (2008), http://www.georgesonshareholder.com/usa/download/acgr/acgr2008.pdf
376. [hereinafter 2008 ANNUAL CORPORATE GOVERNANCE REVIEW] (comparing the number and success of say on pay proposals in 2007 with proposals in 2006).
377. 2007 POSTSEASON REPORT, supra note 302, at 6.
378. 2007 ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 204, at 4.
379. 2008 ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 304, at 5.
380. See 2007 POSTSEASON REPORT, supra note 302, at 3 (observing that these proposals are frequently withdrawn as companies become more willing to negotiate directly with shareholders on these issues).
381. 2004 ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 304, at 6; 2007
382. POSTSEASON REPORT, supra note 302, at 4.
383. 2007 POSTSEASON REPORT, supra note 302, at 6;
384. RISKMETRICS GROUP, POSTSEASON REPORT 5 (2009), http://www.riskmetrics. com/system/files/private/2009-PSR-Public-final.pdf
385. [hereinafter 2009 POSTSEASON REPORT].
386. 2009 POSTSEASON REPORT, supra note 310, at 5.
387. Joann S. Lublin, Say on the Boss's Pay: Aflac CEO Amos Bets on His Track Record as Insurer Becomes First U. S. Company to Hold Vote on Executive Compensation, WALL ST. J., Mar. 7, 2008, at B1.
388. George Anders, 'Say-on-Pay' Gets a Push, but Will Boards Listen?, WALL ST. J., Feb. 27, 2008, at A2.
389. Say-on-Pay Is on the Way, SMARTPROS, Mar. 2, 2009, http://accounting. smartpros.com/x65641.xml.
390. Press Release, Am. Fed'n of State, County and Mun. Employees, Say on Pay Shareholder Proposals Garner Record Support During Tumultuous Shareholder Season (May 4, 2009), available at http://www.afscme.org/press/26145.cfm.
391. See Obama Imposes Limits on Executive Pay, MSNBC, Feb. 4, 2009, http://www.msnbc. msn.com/id/29003620 (noting that future recipients of TARP funds will be required to hold a nonbinding shareholder vote in order to pay executives more than $500, 000).
392. DealBook, http://dealbook.blogs.nytimes.com/2009/05/19/schumer-seeks- shareholdervote-on-executive-pay (May 19, 2009, 14:27 EDT).
393. See generally Bebchuk et al., supra note 292, at 2-4 (arguing that the influence executives have over boards exerts substantial pressure on compensation decisions, which in cases of great influence leads to compensation that is constrained only by fear of public outrage).
394. See supra notes 288-93 and accompanying text.
395. See generally MACE, supra note 3, at 73-85 (discussing the use of the power of control by company presidents and the interplay between presidents and boards in corporate decision making).
396. See id. at 186 ("In most companies the allocation of capital resources, including the acquisition of other enterprises, is accomplished through a management process of analysis resulting in recommendations to the board and in requests for approval by the board.... Approval by boards in most companies is perfunctory, automatic, and routine.").
397. See Kahan & Rock, supra note 22, at 1029-33 (providing examples of institutionalinvestor shareholders challenging CEOs).
398. See id. at 1029-42 (discussing various cases of activist shareholders exercising control over corporate governance).
399. Jim Kerstetter, Finally, Oracle Nails PeopleSoft, BUS. WK., Dec. 13, 2004, available at http://www.businessweek.com/technology/content/dec2004/ tc20041213-8884-tc024.htm.
400. See Kahan & Rock, supra note 22, at 1029-46 (examining how a variety of shareholders, including hedge funds and mutual funds, leverage their voting powers against corporate boards).
401. CEOs who consume excessive perks may also face criticism. Personal use of corporate jets must be disclosed under 17 C. F. R. § 229. 402 (c) (2) (ix)
402. Id. A further requirement is that the company must identify by type each individual perk and must quantify and disclose each perk that exceeds the greater of $25, 000 or 10% of the total amount of individual perks.
403. Id. § 229. 402 (c) (2) (ix), instruction 4.
404. See Aaron Smith, Yahoo Puts Icahn on Board, Settling Spat, FORTUNE, July 21, y2008, available at http://money.cnn.com/2008/07/21/news/companies/yahoo- icahn/index.htm (noting that Yahoo agreed to place Icahn on its board and allowed him to appoint two additional board members while at the same time thwarting his efforts to take over control of the board).
405. ALLEN, supra note 148, at iv;
406. IR MAG. GUIDE, A PERFECT PROXY STORM 2 (2007), http://www.altmangroup. com/pubs/IRMag/IR Magazine - US Guide March (2).pdf.
407. See, e.g., D. Michael Fields, Perfect Storm, BIZED MAG., Jan./Feb. 2006, at 34, http://www.aacsb.edu/publications/Archives/JanFeb06/p34-37.pdf ("A perfect storm, by definition, is a convergence of independent events....").
408. Specifically, the way retirement benefits are financed.
409. Marcel Kahan & Edward Rock, Corporate Constitutionalism: Anti-takeover Charter Provisions as Precommitment, 152 U. PA. L. REV. 473, 495-96 (2003).
410. Companies require shareholder approval only if majority voting is embedded in the charter, a majority voting bylaw is adopted by shareholders, or a board-adopted bylaw provides that it can be amended only by shareholders. DEL. CODE ANN. tit. 8, §§ 216, 242 (2001 & Supp. 2008).
411. See supra note 152.
412. See Kenneth W. Hollman, Merger Mania: Human and Economic Effects, REV. BUS., June 22, 1991, available at http://www.allbusiness.com/buying-exiting- businesses/mergersacquisitions/268232-1.html ("Over 30 states (including Delaware) passed laws in the latter half of the 1980s to thwart the takeover effects of corporate raiders.").
413. Has Shareholder Influence Gone Too Far? Or Not Far Enough?, Posting of Heidi N. Moore to Deal Journal, http://blogs.wsj.com/deals/2008/05/23/has- shareholder-influence-gone-toofar-or-not-far-enough/(May 23, 2008, 12:06 EST).
414. For example, many prominent investment banks and law firms refused to work for hostile bidders. See, e.g., RON CHERNOW, THE HOUSE OF MORGAN 707 (2001) (acknowledging that until the late 1980s, J. P. Morgan did not do work for hostile bidders).
415. During the 2008 election cycle, hedge-fund-associated individuals and PACs made over $16 million in political contributions to federal candidates and parties. See Hedge Funds: Long-Term Contribution Trends, http://www.opensecrets.org/industries/indus.php?cycle=2010 &ind=f2700 (showing amount of political contributions made by hedge funds). For six funds, the contributions exceeded $500, 000.
416. See Hedge Funds: Top Contributors to Federal Candidates and Parties, http://www.opensecrets.org/industries/contrib.php?ind=f2700&cycle=2008 (showing top hedge fund political contributors and detailing their contributions).
417. Presidential candidate John Edwards worked with hedge fund Fortress Investment. Emily Thornton, John Edwards Hits the Streets, BUS. WK., Oct. 13, 2005, http://www.businessweek.com/bwdaily/dnflash/oct2005/nf 20051013-3314-db016.htm.
418. Chelsea Clinton has also worked with hedge funds. Chelsea Clinton Joins New York Hedge Fund, MSNBC, Nov. 3, 2006, http://www.msnbc.msn.com/id/15549672/.
419. For example, union-affiliated pension funds sponsor some of the anti-management resolutions discussed above. See supra notes 295-99 and accompanying text.
420. MICHAEL J. STAHL & DAVID W. GRIGSBY, STRATEGIC MANAGEMENT: TOTAL QUALITY AND GLOBAL COMPETITION 8-9 (1997).
421. 2007 ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 204, at 33;
422. ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 304, at 33-34.
423. GEORGESON, ANNUAL CORPORATE GOVERNANCE REVIEW 32 (2005), http://www.georgesonshareholder.com/emea/resources-research.php
424. [hereinafter 2005 ANNUAL CORPORATE GOVERNANCE REVIEW];
425. GEORGESON, ANNUAL CORPORATE GOVERNANCE REVIEW 31 (2006), http://www.georgesonshareholder.com/emea/resources-research.php
426. [hereinafter 2006 ANNUAL CORPORATE GOVERNANCE REVIEW].
427. 2008 ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 304, at 33-34.
428. 2004 ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 304, at 21-22;
429. ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 304, at 32-33.
430. See Neil O'Hara, Prepare for Attack: What to Do When Hedge Funds Move In, COMPLIANCE WK., Mar. 28, 2006, http://www.complianceweek.com/article/2404/ defensive-moveswhen-hedge-funds-attack (noting that before the rise in activist shareholders companies used to be able to simply ignore the investors);
431. see also Kirsten Grind, WaMu Likely to Ignore Ire of Shareholders at Meeting, PUGET SOUND BUS. J., Apr. 11, 2008, http://seattle.bizjournals.com/ seattle/stories/2008/04/14/story2.html ("Boards usually don't listen to the messages sent by shareholders when they withhold votes....").
432. See supra notes 156-68 and accompanying text.
433. 2007 ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 204, at 33.
434. 2008 ANNUAL CORPORATE GOVERNANCE REVIEW, supra note 304, at 33-34.
435. See, e.g., CONVERGENCE AND PERSISTENCE IN CORPORATE GOVERNANCE 4-5 (Jeffrey N. Gordon & Mark J. Roe eds., 2004) (chronicling arguments about convergence and ways in which convergence could prevail);
436. John C. Coffee, Jr., The Future as History: The Prospects for Global Convergence in Corporate Governance and Its Implications, 92 NW. U. L. REV. 641, 645-48 (1999) (describing several alternative positions that have emerged in the convergence debate);
437. Jennifer G. Hill, The Persistent Debate About Convergence in Comparative Corporate Governance, 27 SYDNEY L. REV. 743, 743-44 (2005) (book review) (analyzing the "convergence-divergence" corporate governance debate over the last few decades).
438. Donald Kalfen et al., The Future of Say on Pay: Current Status and Possible Impact, BOARDMEMBER, http://www.boardmember.com/Article-Details.aspx? id=2076.
439. Jennifer G. Hill, The Shifting Balance of Power Between Shareholders and the Board: New Corp's Exodus to Delaware and Other Antipodean Tales 33 (Vanderbilt Univ. Law Sch., Law & Econ. Research Paper No. 08-06, 2008), available at http://ssrn.com/abstract=1086477.
440. Canada Business Corporations Act, R. S. C. § 109 (1985).
441. See Robert Daines, The Incorporation Choices of IPO Firms, 77 N. Y. U. L. REV. 1559, 1563 (2002) ("Delaware has a nearly 70% share of IPO firms and 95% share of firms incorporating outside their home state. Delaware's share is growing over time.").
442. E.g., Lucian A. Bebchuk, Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law, 105 HARV. L. REV. 1435, 1438 (1992);
443. see also William L. Cary, Federalism and Corporate Law: Reflections upon Delaware, 83 YALE L. J. 663, 666 (1974) (arguing for federal rules as a solution to the "race for the bottom" situation created by Delaware and other states' management "enabling" acts).
444. See, e.g., Roberta Romano, Empowering Investors: A Market Approach to Securities Regulation, 107 YALE L. J. 2359, 2383 (1998) (asserting that investors benefit from competition and changes in corporate domicile to states such as Delaware);
445. Ralph K. Winter, Jr., State Law, Shareholder Protection, and the Theory of the Corporation, 6 J. LEGAL STUD. 251, 257-58 (1977) (arguing that the fact that other states have had to change their laws in response to Delaware indicates that investors do not believe the race to the bottom theory and instead believe that they do better under Delaware law).
446. E.g., Michael Barzuza, Price Considerations in the Market for Corporate Law, 26 CARDOZO L. REV. 126, 135-36 (2004);
447. Marcel Kahan & Ehud Kamar, The Myth of State Competition in Corporate Law, 55 STAN. L. REV. 679, 739-40 (2002).
448. DEL. CODE ANN. tit. 8, § 216 (2009).
449. Id. § 112.
450. There have also been some recent judicial decisions favoring shareholders. In CA, Inc. v. AFSCME Employees Pension Plan, 953 A.2d 227 (Del. 2008), the court held that governance rules-specifically, rules on reimbursement of proxy expenses-are proper subjects of bylaws and need not be included in the corporate charter, as long as they do not require violations of Delaware law (including fiduciary duty law).
451. Id. at 240.
452. And in Gantler v. Stephens, 965 A.2d 695 (Del. 2009), the court made it more difficult for boards to obtain shareholder ratification of breaches of fiduciary duties by holding that "the scope of the shareholder ratification doctrine must be limited to... circumstances where a fully informed shareholder vote approves director action that does not legally require shareholder approval in order to become legally effective."
453. Id. at 713.
454. See supra notes 320-27 and accompanying text.
455. See John C. Coates, IV & Reinier Kraakman, CEO Tenure, Performance and Turnover in S&P 500 Companies 5 (European Corporate Governance Inst., ECGI-Finance Working Paper No. 191/2007, 2010), available at http://ssrn.com/abstract=925532 ("CEOs on the cusp of retirement or discharge might opt to sell their companies instead, in order to trigger option plans and liquidate equity holdings.").
456. Charles M. Elson, Corporate Law Symposium: The Duty of Care, Compensation, and Stock Ownership, 63 U. CIN. L. REV. 649, 694 (1995).
457. In practice, Delaware law addresses lock-ups only in the context of competing bids. See Hastings-Murtagh v. Tex. Air Corp., 649 F. Supp. 479, 484 (S. D. Fla. 1986) (determining that Delaware law allows lock-up provisions "where there is a live auction with competing bidders").
458. See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985) (setting the standard used by courts to determine whether a board's defensive measures to a perceived threat of hostile takeover, which interfere with the exercise of shareholder voting, are reasonable).
459. See Lucian A. Bebchuk, Letting Shareholders Set the Rules, 119 HARV. L. REV. 1784, 1787-95 (2006) (responding to criticism of his recommendation to give shareholders control over "rules-of-the-game" decisions);
460. Lucian A. Bebchuk, The Case for Increasing Shareholder Power, 118 HARV. L. REV. 833, 850-75 (2005) (arguing for giving shareholders the power to initiate and adopt "rules-of-the-game" decisions such as amending corporate charters and reincorporation in another jurisdiction).
461. Stephen M. Bainbridge, Director Primacy and Shareholder Disempowerment, 119 HARV. L. REV. 1735, 1736-44 (2006) (arguing that the current regime offers substantial efficiency benefits);
462. Leo E. Strine, Jr., Toward a True Corporate Republic: A Traditionalist Response to Bebchuk's Solution for Improving Corporate America, 119 HARV. L. REV. 1759, 1769-75 (2006) (arguing that the capital markets have not indicated a need for substantial change in corporate governance).
463. See supra notes 158-72 and accompanying text.
464. The Blackstone Group L. P., Amendment Number 9 to Form S-1, at 148, 151 (June 21, 2007).
465. Id. at 149, 151.
466. See Chris Snow, Impact of Credit Crisis on Private Equity Markets, 28 REV. BANKING & FIN. L. 71, 79 (2009) (emphasizing the future opportunities in the private equity industry due to significant uncommitted capital from the recent "boom" despite the fact that "[b]ecause of recent financial instability and frozen credit markets, traditional private equity buyout activity has essentially stopped").
467. The Blackstone Group, supra note 366, at 149.
468. Id.
469. See Brian Cheffins & John Armour, The Eclipse of Private Equity, 33 DEL. J. CORP. L. 1, 13 (2008) (contending that when a private equity fund buys a company "management can become very rich" and avoid the "adverse publicity associated with generous executive pay in public companies").
470. See id. at 12 (explaining that when private equity firms carry out buyouts they usually "opt to negotiate a 'friendly' deal with the target").
471. See Edward B. Rock & Michael L. Wachter, Islands of Conscious Power: Law, Norms, and the Self-governing Corporation, 149 U. PA. L. REV. 1619, 1698 (2001) (anchoring centralized management within the theory of the firm).