It’s always a treat for a professor to be discussed by a widely read authority, and an especially rare treat to be credited by such a person with saying something clever. So I was pleased to see that Jim McRitchie commented on a couple of my recent postings.
As to the asserttion that I was being “clever,” I respectfully disagree: all I did was present evidence that changing the Delaware default rule for the voting standard in director elections wouldn’t have much formal effect, in light of how frequently Delaware corporations appear to adopt controlling bylaw provisions that make the default standard moot. McRitchie doesn’t challenge this evidence, and I stand on my criticism of the factual assertion that many Delaware corporations adopt the plurality vote standard by default.
More usefully, McRitchie makes the potentially plausible point that a change to the Delaware standard might have an informal impact by encouraging companies to amend plurality vote bylaws and replace that standard with a majority vote standard. That may or may not be so – seems fairly speculative to me – but I didn’t intend to take a position on whether changing the default voting standard would be a good or bad thing. In any event, McRitchie says I’m guilty of “status quo thinking,” which I take to be intended as a pejorative comment. As to that, I have two responses:
First, my post on reframing shareholder voting and potentially eliminating a knee-jerk adherence to having annual shareholder meetings is anything but “status quo thinking;” one could accuse McRitchie of status quo thinking in dismissing my suggestions as wrong ideas, rather than exploring whether reducing the frequency of meetings and voting might be worth it to shareholders if they were given greater power and influence in connection with less frequent meetings.
Second, “status quo thinking” may to some extent simply be a recognition of the reality that some ideas just aren’t in the cards, in any foreseeable future. Example: McRitchie agrees that annual meetings are mostly meaningless, but he partly blames shareholder apathy on the fact that a lot of voting is on merely precatory resolutions. But addressing the meaninglessness of annual meetings by making precatory resolutions mandatory just isn’t going to happen, and shouldn’t. We have a director-centric model of corporate governance, I see no serious support for turning every 14a-8 shareholder proposal into a binding referendum. I suggest that my approach is much closer to the realm of possibility, as long as management and shareholder representatives are willing to recognize that the system could be improved if they both could at least discuss and then maybe agree on acceptable trade-offs that make the shareholder voting system more effective. Those potential trade-offs, by the way, include some sort of enhancement of proxy access.
So, I renew my invitation to McRitchie and other leading corporate governance authorities to explore reforms that offer both management and shareholders (but not necessarily their intermediaries) a better deal. And I reiterate that I’m not suggesting eliminating annual meetings as an isolated, unilateral measure: reducing the extent of shareholder voting depends on management’s willingness to make less frequent voting more meaningful, particularly in relation to the election of directors.