Senator Chuck Schumer's proposed Shareholder Bill of Rights would, inter alia:
[Affirm] the U.S. Securities and Exchange Commission's authority to grant shareholders access to the corporate proxy for nominations to the board of directors. ...
The bill requires public companies to create a separate risk committee in order to ensure that risk management is given appropriate oversight. Companies would be required to separate the duties of the chief executive and board chairman -- such as what happened at Bank of America. In April, shareholders voted to strip Chief Executive Officer Kenneth Lewis of his position as chairman of the board.
Schumer's bill would require companies to obtain shareholder approval for executives' so-called golden parachutes, or the hefty pay packages given to executives when they leave the company.
It also requires corporate directors to be subject to annual shareholder votes and to receive a majority of votes cast by shareholders in order to remain on board.
Count me as a skeptic. Several years ago, I published a pertinent paper entitled Director Primacy and Shareholder Disempowerment. You can down load it here.
Abstract: This essay is a response to Lucian Bebchuk's recent article The Case for Increasing Shareholder Power, 118 Harvard Law Review 833 (2005). In that article, Bebchuk put forward a set of proposals designed to allow "shareholders to initiate and vote to adopt changes in the company's basic corporate governance arrangements."
In response, I make three principal claims. First, if shareholder empowerment were as value-enhancing as Bebchuk claims, we should observe entrepreneurs taking a company public offering such rights either through appropriate provisions in the firm’s organic documents or by lobbying state legislatures to provide such rights off the rack in the corporation code. Since we observe neither, we may reasonably conclude investors do not value these rights.
Second, invoking my director primacy model of corporate governance, I present a first principles alternative to Bebchuk's account of the place of shareholder voting in corporate governance. Specifically, I argue that the present regime of limited shareholder voting rights is the majoritarian default and therefore should be preserved as the statutory off-the-rack rule.
Finally, I suggest a number of reasons to be skeptical of Bebchuk's claim that shareholders would make effective use of his proposed regime. In particular, I argue that even institutional investors have strong incentives to remain passive.
Keywords: corporations, corporate governance, shareholders, stockholders, institutional investors, board of directors, managers, voting
JEL Classifications: K22