Stockholder Voting Rights

3 Key excerpts on "Stockholder Voting Rights"

• 

  eBook - ePub

  The Economic Structure of Corporate Law

  • Frank H. Easterbrook, Daniel R. Fischel(Authors)
  • 1996(Publication Date)
  • Harvard University Press

    (Publisher)

  Shareholders, as residual claimants, have the most to lose (or to gain) as a result of fundamental corporate changes. Moreover, the possibility of large gain or loss in these transactions because of their size is sufficient to overcome the collective action problems, particularly for institutional investors, that would make voting on ordinary business decisions meaningless. The vote on the merger can be viewed as a midterm election of directors, a vote of confidence on a major decision. The statute requires the midterm election as a partial response to the collective action problems that make it difficult for shareholders to organize to oust directors between elections. The right to vote is simply an additional monitoring device possessed by the residual claimants when the stakes are high enough. Although shareholders approve almost all mergers, this may be attributable to advance consent by institutional investors, consent that would not be necessary if there were no right to vote.

  CHARTER AMENDMENTS

  The other area in which shareholders’ approval is commonly required is charter amendments. Of particular interest in this regard are amendments designed to deter potential bidders from making a tender offer. Because these amendments reduce the probability that the firms’ shareholders will be the beneficiaries of a tender offer at a significant premium over market price, they reduce shareholders’ wealth on average. (Chapter 7 summarizes the data; see also note 7 in this chapter.) If shareholders’ voting serves as a monitoring device on self-interested behavior by management, shareholders should vote against these amendments. The evidence is consistent with this hypothesis. Many institutional investors depart from their customary adherence to the Wall Street Rule (vote with management or sell your shares) and vote against “shark-repellent” amendments.28 The more shares held by institutions, the less likely an antitakeover amendment’s adoption—and the less damaging the amendments that are adopted.

  SHAREHOLDERS ’ VOTING WHEN IT IS NOT REQUIRED

  Our analysis thus far has focused on voting that is required by law. But managers routinely submit a wide range of issues to shareholders including stock option plans, the selection of an independent auditor, and mergers where vote is not required. What explains this pattern?

  Managers submit issues for approval because legal rules encourage them to do so. Shareholders’ approval of a transaction decreases the probability of a successful attack in court. Transactions between a director or officer and a corporation will not be void or voidable, despite the conflict of interest, if the transaction is approved by a vote of the shareholders.29

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Shareholder Participation and the Corporation

  A Fresh Inter-Disciplinary Approach in Happiness

  • James McConvill(Author)
  • 2020(Publication Date)
  • Routledge-Cavendish

    (Publisher)

  Principles.

  In Part II of the OECD Principles, entitled The Rights of Shareholders and Key Ownership Functions’, the OECD clearly sets out what the organisation believes are the core corporate governance rights that shareholders must be entitled to exercise. The rights are confined, in essence, to voting rights in relation to fundamental matters concerning the company:

  Shareholders should have the right to participate in, and to be sufficiently informed on, decisions concerning fundamental corporate changes such as: (1) amendments to the statutes, or articles of incorporation or similar governing documents of the company; (2) the authorisation of additional shares; and (3) extraordinary transactions, including the transfer of all or substantially all assets, that in effect result in the sale of the company.20

  The document also suggests that participation should go beyond these basic rights, to include a consultation power:

  Shareholders, including institutional shareholders, should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.21

  However, the participation appears to be linked back to participating in general shareholder meetings and being kept informed. There does not appear to be any contemplation that individual shareholders could play a co-ordinated role in the strategic direction of the company, beyond exercising basic corporate governance rights on an intermittent basis. This is highlighted by the ultimate recommendations outlined by the OECD in relation to shareholder participation. In the document, the OECD recommends that:

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  International Handbook on Shareholders´ Agreements

  Regulation, Practice and Comparative Analysis

  • Sebastian Mock, Kristian Csach, Bohumil Havel(Authors)
  • 2018(Publication Date)
  • De Gruyter

    (Publisher)

  ad nutum , by making it possible to detail the conditions of removal in the articles of association. With a certain degree of simplification we may note that where members of elected bodies are removable without giving any reasons, shareholders may only be delayed by the mandatory time limits for convening a general meeting if they wish to replace the members of such bodies.

  In order to regulate the influence of shareholders on the composition of management bodies within a joint-stock company, corporate law of certain countries offers the option to issue shares with multiple voting rights. Such shares are common primarily in corporate law of American states which regulate classes and sub-classes of shares rather flexibly.66 In accordance with MBCA (1969) and RMBCA (1984), legislation of most American states, as well as the Delaware General Corporation Act, follow the basic rule of “one share (with no par value), one vote”, expressly allowing derogations for companies in their articles of association. The option to differentiate shares according to the voting rights attached is taken up primarily by private joint-stock companies. By contrast, quoted companies usually respect the rule of proportionality of votes. This stems from the long-respected opinion of the New York Stock Exchange, and in particular the Securities Exchange Commission (“SEC”), which frowned upon any imbalance between voting rights and the capital share in a company from the 1920s to ca. 1980s (see SEC rule 19c-4, containing the principle of “one share, one vote”). In the 1980s, as defence against hostile takeover bids, shares were issued to give voting advantage primarily to company managers. The proportionality rule became significantly eroded67 under the pressure of competitor stock markets (Nasdaq, AMEX), and in particular the Court of Appeal decision68

  Sign up to read

  Learn more about book