Verret Paper Discussed in BNA Securities Law Daily
A research paper written by Professor J.W. Verret was the subject of an article appearing in BNA Securities Law Daily.
Entitled "Defending Against Shareholder Proxy Access: Delaware's Future Reviewing Company Defenses in the Era of Dodd-Frank," the paper outlines various strategies boards can use to defend against proxy access and speculates as to how those strategies might play out before the Securities and Exchange Commission (SEC) and state and federal courts.
Acting on authority conferred by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC approved controversial rule changes allowing shareholders to have their director nominees included in proxy materials if they meet eligibility requirements. Verret noted that in spite of this, Delaware law still "leaves open a vast space for limiting or expanding the reach of proxy access." His paper goes on to suggested specific lines of defense against the proxy access rule.
"The federal mandate for proxy access will harm retail shareholders in the long term," Verret said. "I have therefore provided a number of methods boards can use to mute the impact of the federal rule and permit boards and shareholders to come up with alternative arrangements."
Paper Suggests Innovative Board Strategies to Defend Against Proxy Access Challenges, BNA Securities Law Daily, September 15, 2010.
"The paper noted that
corporate boards will be developing new defenses in response to the proxy
access rule. 'If the hostile takeover period of the mid-1980s is any
indication, corporate lawyers will innovate to meet a demand for defensive
measures,' it said. 'As a result, Delaware corporate law will need to innovate
as well to review the new defensive measures.'
"The paper suggests three main lines of defenses:
• defenses related to
board characteristics, including giving authority to the board to specify
director qualifications, and delegating more authority to subcommittees;
• defenses that
effectively increase insurgents' costs, such as golden and tin parachutes that
are triggered by contested elections; and
• defenses associated
with structuring shareholder voting, including amending corporate charters to
limit voting by 'conflicted shareholders.'
"The SEC's rule amendments are not likely to preempt all state laws that boards can use to fend off proxy access contests, the paper said. 'In fact, this article argues that federal pre-emption is a low risk to the defenses presented.'
Verret's paper is available for download at the SSRN website.