Richards Layton & Finger

Proxy Access by Private Ordering: A Review of the 2012 and 2013 Proxy Seasons

November 2013

Although the process of selecting corporate directors is described in terms that track the political election process—director “candidates” are “nominated” and “elected,” just as political representatives are—there have always been significant differences between political and corporate elections. Director candidates are generally nominated by the incumbent directors, not by shareholders. Few corporate elections involve more than one “candidate” for any director position. And proxy “campaign” materials are funded by the corporation and include only those candidates nominated by the incumbent directors, although other shareholders may prepare, and circulate at their own cost, proxy materials for their own candidates.

In recent years, shareholder activists have argued with increasing vigor that the corporate election process should be more open and, in particular, that excluding shareholder-nominated director candidates from the corporation’s proxy materials undermines shareholder democracy. Corporate traditionalists, on the other hand, have pushed back, arguing that facilitating direct shareholder access to the corporate proxy could make corporations vulnerable to special interests, increase the pressure on boards to focus on short-term rather than long-term shareholder value, and result in fragmented and ineffective boards.