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Business Organizations
Washington & Lee University School of Law
Millon, David K.

I. Intro
1.         Separation of Ownership and Control; Shareholder Primacy and the Accountability Problem
Public Company
Traded on open market
Separation of ownership and control
Lots of shareholders
Each with a small stake
So none really have a voice to direct operations
So this falls on mgmt by default
But what about institutional ownership
Large companies that own large blocks of stock
Though they could influence policy, they are usually sympathetic to mgmt
Shareholder v. non-shareholder interests
Can large corporations take stakeholder (non-shareholder) interests into account in making decisions?
Dodge v. Ford
Shareholder primacy
Among all stakeholders, the interests of the shareholders must occupy the position of primary importance to the shareholders
Foremost duty is to shareholders
Smith v. Barlow
Gift to Princeton upheld
Corp framed arguments in terms of shareholder primacy
Develops the future business leaders
Teaches capitalism free from gov’t interference
Goodwill and PR in the community
This will work in most courts
Remember though, that shareholder primacy still dictates that maximization of wealth is main goal
Why Shareholder Primacy?
Shareholders “own” corp, so it is their property
Encourages investment when directors have to look out for shareholders
Does making mgmt subject to a legal duty do enough
Three mechanisms deal with this problem
Voting Rights
Fiduciary Duty Law / Shareholder Derivative Action
Hostile Takeovers
II.            Shareholder voting and informational Rights
            2.            Shareholder voting in Public Corp; Proxy Fights
Annual Meetings
Special Meetings
MBCA requires 10% shareholder vote for this
States can use different %, with a 25% ceiling
DE allows bd of directors or anyone authorized by bylaws to call mtg
Quorum requirements
MBCA default is 50%
DE default is a majority, but no less than 1/3
If corp can get written consent, corp can proceed without vote
MBCA requires unanimity for this though, so not practical
DE only requires same % as if vote were taken
Proxy Voting
Proxy is right to vote in place of person with right to vote
Proxyholder must vote according to shareholder instructions, or shareholder may give proxyholder discretion
How are shares owned

– Registration requirement
§ 13 – Periodic Reporting Requirement
form 10-K
§ 10 – anti-fraud
§ 14 – Proxy Solicitation
a-8 and a-9
Five Types of Proxy Rules
Form and content of proxy form, proxy statement, and annual report
Proxy fight regs
Inclusion of shareholder proposals in mgmt’s proxy solicitation material
Shareholder to shareholder communications
Shareholder has right to sue for violation of these rules (not expressly in statute, but implied) – J.I. Case v. Borak
3 concerns
Causation – shareholder doesn’t have to prove a violation cased a vote to come out a certain way b/c that would be too high of a burden
Mills – causation is presumed once materiality is established
Materiality – what kind of misstatements/omissions are material?
TSC – if a reasonable shareholder would consider it important in deciding how to vote. Would it have significantly altered the total mix of info available?