Are Proxy Access Bylaws Legal?

The highly respected California attorney Keith Paul Bishop seems to think it could be argued, depending on the state of incorporation (Are Proxy Access Bylaws Legal?, Corporate and Securities Law, 12/8/2011). Most need no reminder that in 2009 Delaware enacted legislation, H.B. 19, 145th Gen. Assem. (Del. 2009), to explicitly authorize proxy access bylaws.  Tit. 8, Del. Code § 112.

However, Bishop says that “California, in contrast, has enacted no such provision.  The current General Corporation Law would seem to rule out discriminatory bylaws.”  Indeed, at least two statutes mandate equality.  Section 400(b) provides:

All shares of any one class shall have the same voting, conversion and redemption rights and other rights, preferences, privileges and restrictions, unless the class is divided into series.

Further, Bishop points to Section 203, which provides:

Except as specified in the articles or in any shareholders’ agreement, no distinction shall exist between classes or series of shares or the holders thereof.

So, does that mean SEC Rule 14a-8 does not apply to corporations incorporated in California because it grants one set of shareowners (14a-8 holders) rights that differ from other shareowners? What about other SEC provisions that require disclosure of the disposition of director nominations for 5% shareowners?

Do the provisions cited by Bishop conflict with other provisions. For example, Section 211 of the California Corporations Code? That sections confers the authority to adopt, amend or repeal bylaws on the shareowners and on the board. The required vote of the shareholders is a majority of the shares entitled to vote. In addition, the articles of incorporation or bylaws may restrict or eliminate the power of the board to adopt, amend or repeal bylaws. Only the shareholders can change a bylaw changing the number of directors or the range of directors.

Bishop previously noted:

the ability of stockholders to bypass the board of directors and directly adopt bylaw amendments will be a function of state law. Nevada, for example, permits the articles of incorporation to include a provision that grants the authority to adopt, amend or repeal bylaws exclusively to the directors. NRS 78.120(2).

(see comment at bottom of this linked post) It looks to me that shareowners in Nevada can adopt bylaws but those bylaws can be overturned by the directors.

If proxy access really doesn’t apply to California corporations, why didn’t Bishop comment on the SEC rulemaking? Perhaps I missed it, or he missed his opportunity at that time.  As I recall, there have been thirteen proxy access proposals filed so far… seven as precatory measures, six as bylaw amendments. I haven’t checked to determine if any were corporations incorporated in California.



, , , , , , , , ,

Comments are closed.

Powered by WordPress. Designed by WooThemes