Delaware Chief Justice Myron T. Steele sponsored by The Arthur and Toni Rembe Rock Center for Corporate Governance on Nov 15, 2011. Steele has published over 300 opinions resolving disputes among members of limited liability companies, and limited partnerships, and between shareholders and management of both publicly traded and close corporations. Watch the video.
Chief Justice Steele discusses the shift from individual shareowners to institutional investors and changes in the difficulty of collective action. There has been a crisis in confidence in the ability of directors to carry out their fiduciary duties. Dodd-Frank’s say on pay and proxy access shift more power to shareowners.
70% of directors are elected annually. Steele argues litigation can be far more effective than rules based-measures. Litigation targets individual companies that have breached their fiduciary duties. Rules-based measures make blanket changes shifting power to shareowners but there are no measures to hold them accountable. Long-term for most institutional investors seems to be a year or two. With the directors, there is an accountability system. With “wolf-pack” shareowner control, there is no long-term accountability. My interests are not the same as the institutional investor.
What qualifies a short slate to be reimbursed for running for the board? Now that there isn’t a 3/3 rule, if the state’s are allowed to experiment, each corporation can craft for themselves. Argues the board is the only “neutral” party. The board is uniquely suited to determine the long-term strategy.
Interestingly, Judge Steele defends the lawsuits against companies with failed say on pay votes. Also discusses the ratcheting up nature of executive compensation. Asks if institutional investors should have a fiduciary duty to the corporations in its portfolio. Be careful what you wish for. For more thought on that, see Fiduciary Duties for Activist Shareholders by Iman Anabtawi & Lynn Stout.