July 18, 2008
Some Interesting Words for Proxy Access
Posted by Lisa Fairfax

In its decision re: AFSCME's bylaw, the Delaware Supreme Court had some  interesting, and perhaps for shareholder advocates, encouraging words about shareholders' right to participte in the board nomination process.

Thus, the Court stated:

The Bylaw would encourage the nomination of non-management board candidates by promising reimbursement of the nominating stockholders’ proxy expenses if one or more of its candidates are elected. In that the shareholders also have a legitimate interest, because the Bylaw would facilitate the exercise of their right to participate in selecting contestants. The Court of Chancery [in Harrah’s Entm’t v. JCC Holding Co.] has so recognized:

[T]he unadorned right to cast a ballot in a contest for [corporate] office. . .is meaningless without the right to participate in selecting the contestants. As the nominating process circumscribes the range of choices to be made, it is a fundamental and outcome-determinative step in the election of officeholders. To allow for voting while maintaining a closed selection process thus renders the former a meaningless exercise.

The shareholders of a Delaware corporation have the right “to participate in selecting the contestants” for election to the board. The shareholders are entitled to facilitate the exercise of that right by proposing a bylaw that would encourage candidates other than board-sponsored nominees to stand for election. The Bylaw would accomplish that by committing the corporation to reimburse the election expenses of shareholders whose candidates are successfully elected.”

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