Last week Jim McRitchie provided a thoughtful response to my post questioning the utility of precatory proxy access proposals. As you’ll see from his response, he draws on analogies to political democracy, and why “let the people decide” doesn’t mean “let the people decide everything:”
Generally, the “people decide” in democracies by delegating authority to their elected representatives. As voters, we get involved directly in nominating and electing candidates but generally then hope that our representatives will work in our interest. We pass along advice and concerns. If our elected officials fail to represent us, we the people again act more directly through initiatives, recall, etc.
With regard to how “pass[ing] along advice and concerns” should work, McRitchie says:
Directors have much to add to the debate. Let’s hear from them. I’m not opposed to submitting binding bylaws but what’s wrong with asking first? If our proposals are successfully endorsed by shareholders but ignored by directors then I would be ready to escalate, not only by submitting binding bylaw proposals but also by calling on shareowners to vote against directors who ignore the will of the voters.
I certainly support the idea of constructive engagement before shots are fired, and McRitchie’s commentary certainly persuades me that the precatory aspect of United States Proxy Exchange’s strategy is a reasonable approach. The new Latham & Watkins model proxy access bylaw and commentary remind me how devilishly complex the details of a proxy access bylaw are (not to mention related matters of advance notice bylaws and qualification bylaws). So I agree with McRitchie that the precatory approach is a useful way “avoid getting into the weeds on company specific legal issues better left to corporate attorneys.”
There’s still a residual problem, however, where I suspect that McRitchie and I continue to disagree, namely on how a board of directors should evaluate the results of a vote on a precatory proxy access proposal. McRitchie is evidently ready to call on shareholders to vote out directors who “ignore the will of the voters,” but how does one discern what that “will” is, when a vote is on general principles and avoids getting “into the weeds” where critical issues lie? If “[d]irectors have much to add to the debate,” as McRitchie correctly argues, isn’t it implicit that they need to exercise judgment and not accede to what they believe are misguided precatory proposals, especially where there’s no cost to shareholders for voting for a proposal that isn’t adequately thought through?