Academic journal article Boston University Law Review

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

Academic journal article Boston University Law Review

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

Article excerpt

INTRODUCTION

Almost thirty years ago, Chancellor William Allen famously remarked that "a corporation is not a New England town meeting."1 Perhaps so-but efforts are under way to change this. One of the most sought-after shareholder rights is the right of shareholders to take action not just at annual meetings, the corporate equivalent of regularly scheduled political elections, but in between, at shareholder-convoked special meetings or by written consent, the corporate equivalent of town meetings. Shareholder proposals asking for the right to call a special meeting or to act by written consent, in turn, constitute one of the most common proposal types submitted over the last ten years and companies have increasingly heeded these shareholder requests.

At special meetings or by written consent, shareholders unhappy with the present board may be able to elect directors more to their liking. After the near demise of staggered boards among large U.S. companies,2 the move to permit shareholders to act in between annual meetings may thus be seen as the next logical step towards making the board replaceable by shareholders at will-or as critics may say, at the whim of a shareholder majority.

But not so fast. The usefulness of having the right to call a special meeting or act by written consent depends, to a much greater extent than most other shareholder powers, on other provisions of state law and the corporate governance structure. Because different shareholder powers are complements or substitutes, the relevant issue is much more complex than whether or not shareholders, can, say, call a special meeting. As a result, shareholder efforts to obtain the power to call a special meeting or act by written consent offer a unique opportunity to study the shareholder proposal mechanism and companies' responses.

This Article examines shareholder rights to call to special meeting or act by written consent from a functional and empirical perspective. On the functional side, it will present a systematic analysis showing how these rights interact with other governance provisions. Depending on these other rights, the ability to call a special meeting or to act by written consent may add little or a lot to the arsenal of shareholder powers. Perhaps most importantly, the analysis identifies three governance provisions that, oddly, have received virtually no attention by shareholder rights activists and are not part of any of the common corporate governance indices3 but that are highly significant in making rights to call a special meeting or act by written consent effective: whether shareholders have the power to remove directors without cause, whether shareholders have the power to fill vacancies, and whether the board size is set pursuant to the bylaws or by a board resolution.

On the empirical side, this Article seeks to shed light on a number of questions. Why have shareholder rights activists focused on rights to call a special meeting and act by written consent and ignored removal, vacancy and board size provisions? Do shareholders seek powers at the companies where these powers are most useful? What factors determine whether boards take steps to change the charter or the bylaws to implement these shareholder proposals? And finally, are shareholders satisfied when a proposal is implemented or does implementation encourage ever-increasing demands for governance changes?

Part I presents the functional analysis. Part II documents and develops hypotheses for why shareholder rights activists have focused on obtaining the power to call a special meeting or act by written consent and ignored other elements of the governance structure that make those powers useful. Part III examines the factors that affect where shareholder proposals seeking venue powers are introduced. Part IV distinguishes between the power to call a special meeting and the power to act by written consent. Part V examines whether board can "buy peace"-whether accommodating one shareholder request satisfies proponents or whether doing so just leads to further requests. …

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