The latest academic salvos in the proxy access debate are now available online in the Virginia Law Review. The May issue features an essay by Lucian Bebchuck, The Myth of the Shareholder Franchise, along with responses from Lynn Stout, Jonathan Macey and others disputing Bebchuk’s analysis and recommendations.
This important debate highlights the phenomenon of interactive federalism. The various interations of policy proposals designed to “fix” perceived problems in the director election process play off of one another in an interesting and somewhat predictable fashion. Corporate governance “activists” press their case with Congress or the SEC for reforms to federal regulatory scheme. Business interests (represented in this instance by the corporate bar and Delaware judges) take note of the activists’ agitation and the SEC’s perceived responsiveness and advocate for more mild reforms at the state level.
Majority voting amendments to the Delaware Code and the Model Business Corporation Act reflect this pattern and succeeded in sidetracking the SEC’s 2003 shareholder access proposal. However, the state-led majority vote movement may have helped spur another activist tactic: binding bylaw amendments, which has kept shareholder access on the federal agenda despite the apparent inclination by current Commissioners to sweep it aside.
This interactive pattern shows that states respond to federal reform proposals even when federal reform efforts languish. It also shows that the state approach to shareholder voting reform will not be the final word, and that reform proponents will continue to seek alternative avenues of reform when their efforts are thwarted either at the state or federal level.