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Sunday, October 26, 2008

Harris on Shareholder Campaigns

The Shareholder Right to Campaign, by Lee A. Harris, University of Memphis - Cecil C. Humphreys School of Law, was recently posted on SSRN.  Here is the abstract:

Shareholder-led campaigns to install new leadership at U.S. firms occur too rarely and, when they do occur, are led by the same, boring cast of characters too often. The funding rules for contested corporate elections are highly tilted toward the "incumbents" (i.e., firm directors) and against "challengers" (i.e., campaigns launched by shareholders). Additionally, the rules promote excessive and profligate spending, with no real check or good estimate of reasonable levels of expenditures. This Article presents empirical evidence that the lop-sided nature of the rules reduces the number of contested corporate elections overall, particularly those that, but for the rules, would originate from average shareholders.

Meanwhile thoughtful solutions to reinvigorate shareholders' ability to participate in firm affairs through corporate elections have come from all corners, from prominent corporate law scholars to Delaware judges to investor-activists to the SEC, the main regulatory authority for corporate entities. As will be shown in this Article, however, all these previous proposals overlook a ready exemplar for how to conduct elections when costs of campaigning are high, voters dispersed widely, and incumbents have a natural, built-in advantage: the public finance system for presidential candidates. In fact, the thirty-year old Presidential Campaign Fund, a system of public funding for eligible presidential candidates, has been an arguable success. This public fund has raised nearly $2 billion dollars for campaign expenditures, won approval from millions of taxpayers, and provided funds for almost all major candidates (with only a handful of notable exceptions). The system of public financing for presidential campaigns provides a remarkably sturdy roadmap for changing the system of contested corporate elections. That is, our public campaign system creates a baseline set of principles that may resolve several of the prickliest questions in contested corporate elections.

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