Corporate & Securities Law

Proxy Access: Congrats to Prof. Bebchuk, & It’s Time to Implement My Defenses

Here we go.  It took a long time, but the SEC adopted proxy access Wednesday under the express delegation of power it received under the Dodd-Frank Act and the proponents of this rule have been celebrating.  Lisa Fairfax over at the Conglomerate offers the best summary of the rules I have seen, in addition to another post offering a must-read analysis of questions that remain.  I was honored to join Eric Talley, Nell Minow, Christopher Bruner and Brett McDonnell in the Conglomerate’s Forum on Proxy Access today to debate the new rule.  My post is available here.  As readers are no doubt aware, I have been blogging about the 16 defenses to proxy access that I developed over the summer.  That series will continue when all the media hub-ub about proxy access dies down, but for those who want a sneak peak the full paper is available here.  (Law review editors take note, the paper is still in the expedite process.)

I first became introduced to this issue in one of the many corporate governance seminars I took with Professor Lucian Bebchuk while I was in law school.  What I appreciated most about him was not his command of the field, which was formidable, but his generosity in mentoring students through rough ideas despite the many demands on his time.  As my career develops, it is something I appreciate more and more.  During one of his seminars I was taking in 2005 he briefed the class on an idea that Commissioner Goldschmid had just introduced, the first of three proxy access proposals the SEC would ultimately consider.  I was honored four years later to testify on the issue of proxy access on opposite sides from my former mentor before the House Financial Services Committee.  Though Professor Bebchuk and I come out on different sides of this issue (call it a Darth Vader turns on Obi-wan-Kenobi situation if you must) he taught me everything I know about corporate governance, and so part of me is glad he is able to enjoy his recent victory.  That said, my paper offers 16 defenses for how to thwart proxy access once and for all.  Let the debates continue.

If my readers will indulge, I will paste below the money quote from my discussion at the Conglomerate about how Delaware’s approach to corporate law, what Professor Roberta Romano calls the “Genius of American Corporate Law,” plays into this situation:

The Corporate Federalism debate, so central to corporate law theory, is now getting on in years.  President Kennedy’s SEC Chairman, William Cary, urged that the SEC should pre-empt Delaware Corporate Law entirely to stop this “pygmy among the 50 states” that “denigrates national policy.”  Despite countless SEC Commissioners and Chairmen who shared his view, and have tried to pre-empt state corporation law as much as they could, Delaware continues to not only survive…but truly thrive and grow as a source of corporation law.

This result is a function of the vibrancy of Delaware’s rule-making approach.  The Delaware philosophy is largely one oriented under freedom-of-contract principles.  (Though the Delaware General Corporation Law is certainly more rigid than the LLP or LLC code, when compared to the federal approach to company regulation it is clearly the winner in terms of facilitating private ordering.)  The federal approach, on the other hand, is by its very nature constrictive.  It seeks to affirmatively control market participants rather than enable them.  As such, I think such a constrictive federal code will always find it difficult to fully pre-empt Delaware precisely because Delaware’s abiding approach to lawmaking is more nimble and responsive to the preferences of market participants.

Full post as published by Truth on the Market on August 27, 2010 (boomark / email).