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CALIFORNIA CORPORATE & SECURITIES LAW

Would Glass Lewis Have Anything To Do If It Were Consistent?

Ralph Waldo Emerson famously derided a foolish consistency, famously writing in his essay, Self-Reliance:

“With consistency a great soul has simply nothing to do. He may as well concern himself with his shadow on the wall. Speak what you think now in hard words, and to-morrow speak what to-morrow thinks in hard words again, though it contradict every thing you said to-day.”

If there is a foolish consistency might there also be a foolish inconsistency?  Compare the following two statements by Glass, Lewis & Co., LLC in its 2018 Proxy Paper Guidelines:

“In light of evolving investor sentiment, we have clarified that we consider that the board generally has an imperative to respond to shareholder dissent from a proposal at an annual meeting of more than 20% of votes cast — particularly in the case of a compensation or director election proposal.”

“Moreover, we believe that a supermajority vote requirement can enable a small group of shareholders to overrule the will of the majority shareholders. We believe that a simple majority is appropriate to approve all matters presented to shareholders.

On the one hand, Glass Lewis claims that a small group of shareholders (as few as 20%) commands an “imperative” while on the other, Glass Lewis declaims that a small group must not overrule the will of the majority.  I’m not the first to observe this foolish inconsistency.  See this blog post by Bob Lamm.

Glass Lewis’s assertion that is simple majority is appropriate to approval “all matters presented to shareholders” is questionable.  In California, the general rule for shareholder action, other than the election of directors, is “the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) . . . unless the vote of a greater number or voting by classes is required by this division or the articles.”  Cal. Corp. Code § 602(a).  In some cases, the General Corporation Law requires the approval of the outstanding shares as defined in Section 152 of the Corporations Code (generally, the affirmative vote of a majority of the outstanding shares entitled to vote).  Cal. Corp. Code § 902(a).

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