September 8, 2006
This is Big, Big, Big: The AIG Case
There has been a huge development in the landscape of shareholder voting in publicly-traded corporations. The Second Circuit has sided with shareholders (The American Federation of State, County and Municipal Employees)in the AIG case and ruled against the Securities and Exchange Commission. The Second Circuit held that the SEC was wrong to allow AIG to omit a shareholder proposal from the firm's proxy card that would allow shareholders to vote for a bylaw that permits a three percent shareholder to nominate directors and put those nominations on the firm's proxy card as alternatives to the candidates nominated by the board itself. This is big, big, big. The ruling, if left alone, in conjunction with Delaware's law, if left alone, that allows shareholders to amend bylaws means that shareholders will have many, many more contested elections in board races. Existing management and their lawyers will fight this new ruling in the trenches. The SEC is already scrambling to revise the rule in time for the next proxy season. If the SEC was smart it would simply accept the new interpretation and leave the matter alone. I also suspect that the Delaware authorities are considering a revision to the Delaware code as well. If Delaware revises its law so that shareholders can be blocked from amending the bylaws, all is not lost as the Rule 14a-8 resolutions will "recommend" that the board put in the change and the board must decide whether or not to ignore its own shareholders. Sensible SEC action is the critical link. Again, if the SEC lets the ruling stand, corporate governance in the United States will change dramatically -- for the better -- immediately. This is big, big, big.
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An interesting and well-written analysis.
Posted by: Bar View | Sep 11, 2006 3:59:20 PM