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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

Proxy Access and Expense Bylaws

Although corporate bylaws are typically limited to process, they can still be extremely powerful in determining the balance of internal corporate governance. For example, although stockholders are required to vote for the board of directors, unless stockholders have the ability to nominate candidates the director positions, the power to vote might appear somewhat meaningless. Consequently, the ability to nominate directors to the corporate ballot is an extremely important power.  Without access to the corporate-sponsered ballot, stockholders are often left only rubber stamping board decisions about who is able to run for a seat on the board of directors. 

Of course stockholders are always free to run a “proxy contest” by sponsering their own proxy ballot, however the mechanics of such a contest are prohibitively expensive for all but the largest stockolders.   

In response to efforts by the SEC to enforce a blanket rule opening up access to the corporate-sponsered proxy to all stockholders, Delaware adopted permissive rules that on the one hand make it possible for corporations to opt to adopt bylaws making access to the corporate proxy available to stockholders under certain conditions.

Delaware also adopted rules that allow corporations to adopt bylaws to permit the reimbursement of election expenses for successful candidates. Reimbursement bylaws are intended to reduce the financial hurdles for independent board candidates to run against incumbent directors. 

Both of these changes – proxy access and reimbursement bylaws - are indended to reduce the incentives against stockholders nominating and running their own candidates for seats on boards and thereby make boards more responsive to stockholder interests. 

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