Gordon Smith correctly notes that:
Board representation has become the corporate governance issue of our time. The SEC's director nomination proposal is dead, but shareholders have taken the battle to the streets. Majority voting provisions recently have been adopted by Dell, Intel, and other firms, and shareholders will vote on such provisions at additional firms in the coming proxy season. AIG is currently battling a proposal that would allow shareholders to adopt a director nomination bylaw. And tomorrow GM's board of directors will meet to consider granting a board seat to Jerome York as Kirk Kerkorian's representative. ...
If recent events have taught us anything, they have taught us that shareholders want more influence over board composition ... and not only the sort of influence that shifts outright control. In my view, this is a positive development in manager-shareholder relations, even though I expect the transition to be bumpy. The most common objection that I have heard from directors is that shareholder nominees have the potential to destabilize the board. If you can get past your initial incredulity at this claim -- "Doh! That's why we want them!" -- you will recognize an important assertion about the nature of boards. The assertion is that board's work as teams, and shareholder nominees are the corporate equivalent of Terrell Owens.
I don't share Gordon's view that this is a positive development, although I'm coming around to the view that it has a certain inevitability.
I would direct you in the first instance to my TCS columns Does the SEC Know When Enough Is Enough? and The SEC: From Bad to Worse?, which discuss some of the many objections to tis trend. In particular, building on my law review article Why a Board? Group Decisionmaking in Corporate Law, which emphasizes the board's role as a team, I advanced precisely the argument that the board's ability to function as a team production unit would be compromised:
The presence on the board of a single shareholder-approved director likely will have a highly disruptive effect on the boards decisionmaking processes. Granted, some firms might benefit from the presence of skeptical outsider viewpoints. The analogy to cumulative voting, however, suggests that such benefits will be rare. It is well-accepted that cumulative voting tends to promote adversarial relations between the majority and the minority representative. On such boards, the majority tends to resort to pre-meeting caucuses at which decisions are worked out. In addition, management tends to restrict the flow of information to such boards, out of concern that the minority will use confidential firm information for improper purposes.
it's not the only argument in favor of the status quo, but I think it's an especially good one.
