Our friends at Harvard run
an excellent blog on corporate governance featuring agreements and
disagreements on various issues. Lucian Bebchuk of Harvard has been quite
successful in launching the shareholder rights project, an effort to get boards
of directors to "de-stagger" or unclassify.
A classified board (also
known as a staggered board) typically elects just 1/3 of its directors each
year. Thus, it takes 3 years to remove a board by election. In
separate research, Bebchuk and co-authors has shown that the combination of a staggered
board and a poison pill can entrench management making it very difficult to
remove them. Hence, he suggests forcing boards to become unclassified and
have all directors elected each year.
Opponents are primarily
lawyers and corporate boards who make a counter argument - classified boards
enable stability, continuity of leadership in the board room. Opponents
also argue that rather than entrenching management, staggered boards slow down
hostile raiders and enable a target firm to better bargain for their shareholders.
Much of the empirical
evidence supports Bebchuk's view, but now a new paper by SEC commissioner
Gallagher and Stanford Law Professor Joseph Grundfest suggests that
Harvard violated security law. Rule 14a-8 used by Bebchuk's group
requires " proposals not be materially
false or misleading" and they argue his use of empirical evidence doesn't
give opposing views adequate attention.
The back and forth between Harvard and Stanford is reminiscent of the takeover field in general. More on that in another blog. For now, let's keep an eye on the evolution of this web fight. You can find the latest blog post here.
All the best,
Ralph
No comments:
Post a Comment