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Majority Voting Can Beat Proxies - Easier Way to Influence Boards, Says Ex-regulator

Publication Date: 
December 10, 2007
Financial Week
Jeff Nash

Financial Week ran this coverage about Professor Joseph Grundfest's working paper on majority voting by shareholders:

Many shareholder advocates believe that the decision late last month by the Securities and Exchange Commission to prevent investors from nominating their own board candidates effectively squashed their best chance for firing inept directors.

Former SEC commissioner Joseph Grundfest, however, argues that shareholders at many companies—more than two-thirds of the S&P 500, at last count—already have the ability to toss incompetent directors off of boards through majority voting policies. And the SEC’s next best move, he says, would be to forget about proxy access and adopt regulations that punish companies that fail to implement majority voting.

In a working paper published last month, Mr. Grundfest, currently a professor at Stanford Law School, says majority voting is “simpler, less arbitrary, less likely to lead to litigation, more likely to promote consensus rather than confrontation” and cheaper to implement than allowing shareholders access to company proxies to nominate directors.

For starters, Mr. Grundfest says, majority shareholder vote requirements—in which directors must receive more yea than nay votes to keep their seats—replicate the “advice and consent mechanism” of the U.S. Constitution. Much as the President must consider whether a nominee will be approved by the Senate, so too must a board concern itself with whether or not shareholders will support its nominees.

“If the advice and consent process is good enough for the United States Constitution, doesn’t it at least deserve a fair shot in the corporate governance process?” Mr. Grundfest asks in his paper.