Research Handbooks in Corporate Law and Governance series
Edited by Jennifer G. Hill and Randall S. Thomas
Chapter 11: Preserving director primacy by managing shareholder interventions
No company is too big to become the target of an activist, and even companies with sterling corporate governance practices and positive share price performance, including outperformance of peers, may be targeted. (Lipton 2013). Until quite recently, the basic structure of corporate governance was almost wholly board centric. Shareholders had few powers and most were uninterested in exercising what little power they possessed. Under the Delaware code, for example, shareholder voting rights were (and still are) essentially limited to the election of directors and approval of charter or bylaw amendments, mergers, sales of substantially all of the corporation’s assets, and voluntary dissolution (Dooley 1995, 174–177). As a formal matter, only the election of directors and amending the bylaws do not require board approval before shareholder action is possible. In practice, of course, even the election of directors (absent a proxy contest) is predetermined by the existing board nominating the next year’s board. These direct restrictions on shareholder power long have been supplemented by a host of other rules that indirectly prevent shareholders from exercising significant influence over corporate decision making.
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