A majority of one: high heat on a front-burner issue.

• Author: Kaback, Hoffer
• Position: QUIDDITIES

ITEM: In a Harvard Law School class years ago taught by Louis Loss, the "dean" of securities regulation, a student challenged the basis on which a corporation could exclude a shareholder proposal from its proxy statement. Loss asked him to justify his sweeping contention that, even if made consistent with the proxy rules, exclusion was impermissible. Clearly confused about the fundamental notion of "state action," the student stammered in reply "The First Amendment ... free corporate speech!" Shaking his head, Loss ended the exchange.

Item: In my column "Two Modest Proposals" (Winter 1998), I suggested these changes to the corporate electoral process: (1) proxy statements to contain a short essay from each board candidate explaining why he added value to, and would be a good director for, that particular board, and (2) public companies to hold annual pre-election conference calls at which board candidates would be available for questions from their electorate. A more recent column, "The Albanian Candidate" (Winter 2001), analyzed in more detail how shareholders are disadvantaged by the dearth of information supplied about board candidates.

Item: In spring 2003, there was much hubbub surrounding the SEC's contemplation of major changes in shareholder access to the company proxy statement--that is, giving shareholders the right to make nominations and to have those nominees included in the proxy statement. The commission seemed poised to act even in the face of legitimate, significant criticism regarding several aspects of its proposal. (See "Access Denied!" Summer 2003.) However, although in 2004 the SEC solicited further comments on a proposed rule, it has made no further move toward adoption. Governance gurus consider the proposal to be dead.

Item: Whether it is right and proper to continue to permit directors to be elected on (mere) plurality vote--as opposed to requiring them to garner a majority--is currently a front-burner issue. Both the Council of Institutional Investors and CalPERS have set the burner to high heat. A whole slew of majority voting shareholder proposals were submitted during the 2005 proxy season. Seeing the lay of the land, several companies have agreed either to adopt some version of the idea or, at least, to study it.

The common theme of the above items is this: Elections for directors of U.S. public companies bear little relation to other elections with which we are familiar.

They are not like elections for public...