Tomorrow, Sunrise Senior Living, Inc. will hold its annual meeting.  An unusual event because the meeting, and its agenda, resulted from two lawsuits—one demanding a shareholder meeting and the other demanding that the meeting be expanded to include more than just the election of three directors.  As the Washington Post notes, since its last shareholders’ meeting, following a disclosure that it would have to restate up to $120 million in earnings, Sunrise has been hit with allegations of insider trading, option backdating, and an SEC investigation.  And to make matters worse, last month its former CEO sued Sunrise claiming that he was fired for uncovering financial irregularities.  So the shareholders will have a lot to discuss at this meeting.

On the agenda, among other things, will be a board declassification proposal.  In its statement, the Service Employee International Union Master Trust, the shareholder that submitted the declassification proposal, cited the company’s staggered board as “at the heart of the governance problems” at the company, arguing that such a board “contributed to the insularity and conflicts of interest that characterize the board and created an extremely high hurdle for significant leadership change.”  If the Sunrise vote is consistent with current trends, it is likely that the declassification proposal will pass.  Indeed, of all the corporate governance measures, declassification has been receiving the strongest level of shareholder approval in recent years.  Hence, according to ISS statistics, on average, such proposals garnered 68% of the vote in the first half of 2006.  In fact, declassification has received a greater portion of the vote than the much-talked about majority vote proposal.  Of course the open question is how Sunrise will respond to a shareholder vote to abolish staggered terms.  Indeed, in a previous study Lucian Bebchuk found that boards tended to ignore even favorable votes in favor of declassification.   Yet given the numerous allegations, investigations and lawsuits levied at Sunrise, perhaps the company will feel compelled to change their board in response to a strong vote from shareholders.  Regardless of the outcome, Sunrise has become part of that growing list of companies that has transformed the shareholder meeting away from its routine and boring roots.

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