What if a Proxy Access Candidate Isn't Qualified?

Keith Bishop begins to address at least one of the issues raised by J.W. Verret (Defending Against Shareholder Proxy Access: Delaware’s Future Reviewing Company Defenses in the Era of Dodd-Frank) but in a much more positive manner.

What happens when a shareholder nominates someone who doesn’t meet the qualification requirements of the bylaws?… One approach is for the chairperson to rule on whether a nominee’s name can be properly brought before the meeting for a vote.  This approach is entirely consistent with the idea that a person who does not meet the qualifications for service as a director is not entitled to be elected.  This approach appears to be in accord with case law.  Waterbury v. Temescal Water Co., 11 Cal. App. 632 (1909) (applying former law).

If the corporation allows a vote on the unqualified candidate and the candidate receives a sufficient number of votes to win a seat on the board, then there is likely to be even more confusion because the General Corporation Law does not specify any mechanism for “seating” board members.

California does provide an expedited judicial process for determining the outcome of elections in Corporations Code Section 709.  However, that process must be initiated by a shareholder “or any person who claims to have been denied the right to vote”.  By its terms, therefore, the procedure is not available directly to either the corporation or a nominee who is not also a shareholder. (Proxy Access & Director Qualification Requirements)

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