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Introduction to the Law of Corporations: Cases and Materials

Stockholder Meetings and Voting for Directors

Stockholders do not have a general right to manage the business and affairs of the corporation. Nor do they have a general right to vote on matters related to the operation of the corporation's business. The principle power of stockholders is the power to vote for directors and certain corporate transactions which for which there is a statutory stockholder vote required. Stockholders who disagree with the strategy or direction of the corporation have generally have two choices: vote in favor of a different board and thus change the composition of the board of directors; or sell their shares. In many cases, institutional stockholders or indexed stockholders will not be in a position to sell their shares. Thus, the corporate ballot box becomes a fulcrum to affect a change in corporate strategy.  

Nominations for membership on the board of directors are typically made by the board itself through a nominations and governance committee of the board created for that purpose. Stockholder activists will often use the threat of a contested election in which they nominate their own directors to sway incumbent directors with respect to corporate strategy. In that sense, stockholder control over corporations can be better described as a "bank shot" (to use a basketball description). While stockholders cannot dictate business decisions to boards of directors, when a board feels sufficiently vulnerable to expulsion at the ballot box, boards will become more amenable to activists' suggestions about the strategic direction of the business.  

The importance of the stockholder franchise and votes for control over the board of directors are the central tension in modern corporate governance. Boards are free to manage corporations in any manner they see fit, subject to regular votes of confidence by stockholders. To the extent boards stray far from the interests of stockholders, boards are vulnerable to replacement through regular stockholder votes. 

The following provisions lay out the requirements for stockholder meetings as well as stockholder voting at these meetings.