From Volume 87, Number 6 (September 2014)
Shareholder voting, once given up for dead as “a vestige or ritual of little practical importance,” has come roaring back as a key part of American corporate governance. Where once voting was limited to uncontested annual election of directors, it is now common to see short slate proxy contests, board declassification proposals, and “Say on Pay” votes occurring at public companies. The surge in the importance of shareholder voting has caused increased conflict between shareholders and directors, a tension well illustrated in recent voting battles. For example, Carl Icahn’s hedge fund opposed Michael Dell’s 2013 bid to take Dell, Inc. private, claiming that the price offered was too low. After a prolonged election battle, a change in the election rules, and a small increase in the deal price, shareholders ultimately voted for the deal. In a similar vein, a 2012 Say on Pay vote by Citigroup shareholders against chief executive officer Vikram Pandit’s $15 million pay package led to his departure and substantive changes to executive compensation, after which more than 90 percent of the firm’s shareholders approved its proposed executive pay scheme. Yet, despite the obvious importance of shareholder voting, none of the existing corporate law theories coherently justify it.