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CALIFORNIA CORPORATE & SECURITIES LAW

Simple Majority Voting And The Magna Carta

Some activists are continuing to submit stockholder proposals seeking the implementation of “simple majority voting”.  For example,  Morgan Stanley’s 2016 proxy statement includes the following proposal from Newground Social Investment, SPC:

RESOLVED: Shareholders of Morgan Stanley hereby request the Board to take or initiate the steps necessary to amend the Company’s governing documents to provide that all non-binding matters presented by shareholders shall be decided by a simple majority of the votes cast FOR and AGAINST an item. This policy shall apply to all such matters unless shareholders have approved higher thresholds, or applicable laws or stock exchange regulations dictate otherwise.

A “simple majority vote” requires the affirmative vote of a majority of the shares actually voting at the meeting.  Thus, abstentions are not included in the calculation.  Other voting rules give effect to abstentions.  Under a majority of the shares “entitled to vote” rule, for example, abstentions have the effect of votes against.

Activists presumably favor a “simple majority vote” (aka “votes cast”) standard because it makes it easier for their proposals to be approved.  Of course, the rule also works in favor of management proposals as well.  Apparently recognizing the risk of being hoisted on their own petard, the Newground unabashedly seeks the less challenging standard only for “non-binding matters”.  This is a less than forthright way of establishing one set of rules for shareholder activists and another for management.  If Newground truly believed that not counting abstentions was preferable, then it should be willing to have it applied equally.

Despite attempts to characterize “entitled to vote” voting rule as underhanded or nefarious, the rule is actually the default rule for Delaware corporations that have not specified a different rule in their certificate of incorporation or bylaw.  Del. Code tit. 8, § 216.  An even more venerable example of counting abstentions can be found in the “security clause” of the Magna Carta:

In omnibus autem que istis viginti quinque baronibus committuntur exequenda, si forte ipsi viginti quinque presentes fuerint, an inter se super re aliqua discordaverint, vel aliqui ex eis summoniti nolint vel nequeant interesse, ratum habeatur et firmum quod ac si omnes viginti quinque in hoc consensissent.

In all of these matters entrusted to these 25 barons for following up on, if by chance these 25 are present, or should disagree amongst themselves about some thing or other, or some of these summoned are unwilling or unable to come, what the greater part of those present shall have decided or decreed is to be held as determined and fixed. (my translation)

Thus, the Magna Carta established a voting rule based on the greater part of those present as opposed to those present and voting.  The security clause itself was included in the charter as a mechanism for ensuring that King John complied with its terms.

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