Abstract
This Article explores the ongoing tension between what shareholders want and what corporate management perceives as beneficial for the shareholders. Beyond the fundamental right to elect directors, federal regulation enables shareholders to engage directly with management on various issues by adding their proposals to a proxy ballot for shareholder voting. However, this unique form of shareholder direct democracy has transformed into a fierce battleground between shareholders and management, as exemplified in ExxonMobil’s litigation against its shareholders to block their proposal. Why do many companies emphasize their efforts to engage with shareholders yet resist shareholder proposals?
This Article argues that companies’ efforts to exclude proposals from the ballot undermine the value of the shareholder proposal process as a means of gathering information and better understanding preferences. To retain the benefits, while mitigating the costs associated with the shareholder proposal process, it advocates for a more permissive approach to include proposals on the ballot, and a gradual transition from an approval-based to a disclosure-based regime. Once shareholder voting occurs, in turn, companies are better positioned to interpret voting outcomes, assess the representativeness of shareholder preference, and determine when and how to implement the expressed shareholder preference. This discretion is constrained not just by the voting-centric shareholders in future director elections but also by trading-centric shareholders, who may sell stock instead of voting when dissatisfied, necessitating management to consider broader market reactions to implementation.
The Article makes three key contributions. First, it examines the interplay between the voting- and trading-centric shareholders in the context of the shareholder proposal process, offering new insights into the representativeness of the shareholder voting outcomes. Second, it employs an interdisciplinary approach, bridging legal, finance, and political science literature on direct democracy, laying the groundwork for collaboration to better calibrate the relationship between shareholder democracy and managerial discretion. Third, it offers practical implications for the Securities and Exchange Commission (SEC), courts, and corporations, addressing ongoing legal issues and contributing to the evolving discourse surrounding shareholder proposals.
Recommended Citation
Geeyoung Min,
Shareholder Direct Democracy,
74
Emory L. J.
381
(2024).
Available at:
https://scholarlycommons.law.emory.edu/elj/vol74/iss2/3