The Failure of Private Ordering and the Need for Shareholder Access

Access, so the argument goes, is a categorical rule that should be replaced with a more flexible approach that allows for private ordering.  As we have noted, Delaware law does not do a good job at allowing private ordering.  See Opting Only in: Contractarians, Waiver of Liability Provisions, and the Race to the Bottom.  Moreover, management will resist and has the corporate treasury to facilitate the opposition.  As a result, there is no reason to believe that in the area of access shareholders will have any success.  Thus, the enabling approach is enabling in name only.  It will result in a categorical rule that favors management.  This happened with respect to waiver of liability provisions.  Id. 

With that in mind, we note the no action letter issued by the staff at the Commission to General Electric.  The proposal sought to give shareholders an increased voice in the director selection process.  The proposal provided:

• The Board of Directors shall request from each ofthe eight largest Shareholders one nomination to the slate of nominees submitted by the Board at the next and each subsequent Annual Meeting for election to the Board of Directors.  Remaining nominees shall be selected by the Board as they are currently. 

Rather than allow the proposal to be put to a vote (and further the goal of private ordering), General Electric sought to prevent the solicitation of proxies by obtaining the staff's approval to delete it from the proxy statement.  The staff agreed and, given the current state of the law (including the stay of access), was probably correct.  But had GE been committed to private ordering, it never would have sought exclusion and allowed shareholders to vote on the matter.  

It is perhaps unfair to pick on GE.  But in truth, management does not want to see shareholders with expanded ability to nominate and select directors.  There is no reason to believe that management will, in general, do everything it can to prevent this from occurring, including taking advantage of the complicity of the proxy rules and the Commission staff. 

Access cuts through all of this.  It is a singular reason why it is needed.