Cox, Ferri, Honigsberg & Thomas: Are Companies Impermissibly Bundling Proposals for Shareholder Votes?

Abstract:

The integrity of shareholder voting is critical to the legitimacy of corporate law. To help protect investors’ rights, since 1992, SEC rules clearly prohibit corporate management from distorting shareholders’ choices by the artifice of joining in a single resolution multiple items. SEC rules require corporate management to make individual management proposals on “separate” items.

In this paper, we provide the first comprehensive evaluation of the SEC bundling rules. We begin with a careful dissection of the rules themselves as well as the courts’ interpretation of them. We provide an analysis of the contrasting, less vigorous, interpretation of the rule by the SEC itself. We find that while the courts have carefully developed several useful approaches to the rules scope and proper application, the SEC’s efforts have been in stark contrast with the rules’ mission. In fact, we find that the most recent SEC interpretive guidance has undercut the effectiveness of the existing rules and created unnecessary ambiguity about their proper application.

Available for download here.

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