ISSN 1045-6333 HARVARD JOHN M. OLIN CENTER FOR LAW, ECONOMICS, AND BUSINESS SYMPOSIUM ON CORPORATE ELECTIONS Lucian Bebchuk, editor Discussion Paper No. 448 11/2003 Harvard Law School Cambridge, MA 02138 The Center for Law, Economics, and Business is supported by a grant from the John M. Olin Foundation. This paper can be downloaded without charge from: The Harvard John M. Olin Discussion Paper Series: http://www.law.harvard.edu/programs/olin_center/ The Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract =471640 This paper is also a discussion paper of the John M. Olin Center's Program on Corporate Governance . Symposium on Corporate Elections Lucian Bebchuk, editor Abstract This paper contains the proceedings of the Symposium on Corporate Elections held at Harvard Law School in October 2003. The symposium brought together SEC officials, CEOs, directors, institutional investors, money managers, shareholder activists, lawyers, judges, academics, and others to discuss the subject from a wide range of perspectives. The symposium included six sessions. The first session focused on the basic pros and cons of shareholder access. It featured a presentation and discussion of two papers: “Election Contests in the Company’s Proxy: An Idea whose Time has not Come” by Martin Lipton and Steven Rosenblum, Wachtell, Lipton, Rosen & Katz; and “Shareholder Access to the Ballot” by Lucian Bebchuk, Harvard Law School. The second session focused on the perspective of boards and management. The panel speakers were Richard Breeden (Chairman, Richard C. Breeden & Co.), John Castellani (President, The Business Roundtable), James Rogers (Chairman of the Board and Chief Executive Officer, Cinergy Corp.), and Ralph Whitworth (Chairman of the Board, Apria Healthcare Group, Inc.). The third session focused on the perspective of institutional investors. The panel speakers were Orin Kramer (Partner, Kramer Spellman, L.P.A), Robert Pozen (Visiting Professor of Law from Practice, Harvard Law School and formerly Vice-Chair, Fidelity Investments), Michael Price (Managing Partner, MFP Investments) and Sarah Teslik (Executive Director, Council for Institutional Investors). The fourth session of the symposium focused on the perspective of shareholder activists and advisers. Panelists were Jaime Heard (Chief Executive Officer, Institutional Shareholder Services), Robert Monks (Founder, Lens Governance Advisors), Damon Silvers (Associate General Counsel, AFL-CIO), and John Wilcox (Vice Chairman, Georgeson Shareholders). The fifth session focused on legal problems in designing a shareholder access rule. The panel speakers were John Coffee (Professor of Law, Columbia Law School), Joseph Grundfest (Professor of Law and Business, Stanford Law School), Robert Todd Lang (Senior Partner, Weil, Gotshal & Manges), Charles Nathan (Partner, Latham & Watkins), and Leo Strine (Vice Chancellor, Delaware Chancery Court). The final session featured concluding remarks. The speakers were Robert Clark (Harvard University Distinguished Service Professor and Professor of Law, Harvard Law School), Floyd Norris (Chief Financial Correspondent, The New York Times), and Harvey Goldschmid (Commissioner, U.S. Securities and Exchange Commission). Each session started with opening presentations by the panelists, followed by a discussion among the panelists and between the panelists and other participants in the symposium. Key words: corporate governance, directors, shareholders, shareholder voting, corporate elections, proxy fights, proxy contests, proxy rules, corporate elections, SEC. JEL classification: D70, G30, G32, G34, G38, K22. © Lucian Bebchuk 2003. All rights reserved. Table of Contents Editor’s Note i List of Speakers ii Session 1: The Basic Pros and Cons of Shareholder Access ………………………1 Panelists: Martin Lipton and Steven Rosenblum, Wachtell, Lipton, Rosen & Katz Lucian Bebchuk, Harvard Law School Session 2: The Board/Management Perspective……………………………………30 Panelists: Richard Breeden, Richard C. Breeden & Co. John Castellani, The Business Roundtable James Rogers, Cinergy Inc. Ralph Whitworth, Apria Healthcare Group Session 3: The Perspective of Institutional Investors…………………………… 53 Panelists: Orin Kramer , Kramer Spellman Robert Pozen, Harvard Law School Michael Price, MFP Investors Sarah Teslik, Council for Institutional Investors Session 4: The Perspective of Shareholder Activists and Advisers……………..74 Panelists: Jaime Heard, Institutional Shareholder Services Robert Monks, Lens Governance Advisors Damon Silvers, AFL-CIO John Wilcox, Georgeson Shareholders Session 5: Legal Problems in Designing a Shareholder Access Rule………...…96 Panelists: John Coffee, Columbia Law School Joseph Grundfest, Stanford Law Schoool Robert Todd Lang, Weil, Gotshal & Manges Charles Nathan, Latham & Watkins Leo Strine, Delaware Chancery Court Session 6: Concluding Remarks…………………………………………………….117 Panelists: Robert Clark, Harvard Law School Floyd Norris, The New York Times Harvey Goldschmid, U.S. Securities and Exchange Commission Editor’s Note: This edited transcript seeks to make publicly available the proceedings of the Symposium on Shareholder Access to the Ballot that was held at Harvard Law School on October 3, 2003. Editing was done by the speakers and the editor, with the aim of retaining the spirit of the symposium while ensuring that the speaker’s message is clearly and accurately conveyed to readers. The conference was the first event of the recently established Harvard Law School Program on Corporate Governance. It was sponsored by the Program and by the Harvard Law School John M. Olin Center for Law, Economics, and Business. I wish to thank Professor Steve Shavell, the director of the Olin Center, and Dean Elena Kagan for their support. I am also grateful to various colleagues for their help in organizing the symposium and moderating its sessions, including John Coates, Brian Hall, Howell Jackson, Reinier Kraakman, Jay Lorsch, and Guhan Subramanian; special thanks go to Mark Roe for his advice and encouragement throughout. Finally, for their help in administering the symposium as well as in preparing its proceedings, I am grateful to Erica George, Julie Johnson, Kiwi Kamara, and Rob Maynes. i List of Speakers Panelists, Moderators, and Discussion Participants Lucian Bebchuk, Harvard Law School Alan Beller, U. S. Securities and Exchange Commission Matthew Bishop, The Economist Richard Breeden, Richard C. Breeden & Co. John Castellani, The Business Roundtable Robert Clark, Harvard Law School John Coates, Harvard Law School John Coffee, Columbia Law School Jill Fisch, Fordham University School of Law Harvey Goldschmid, U.S. Securities and Exchange Commission Joseph Grundfest, Stanford Law School Brian Hall, Harvard Business School Paul Healy, Harvard Business School Jamie Heard, Institutional Shareholder Services Howell Jackson, Harvard Law School Reinier Kraakman, Harvard Law School Orin Kramer , Kramer Spellman Robert Todd Lang, Weil, Gotshal & Manges Martin Lipton, Wachtell, Lipton, Rosen & Katz Jay Lorsch, Harvard Business School Robert Monks, Lens Governance Advisors Charles Nathan, Latham & Watkins LLP Floyd Norris, The New York Times Robert Pozen, Harvard Law School Michael Price, MFP Investors Mark Roe, Harvard Law School James Rogers, Cinergy Inc. Steven Rosenblum, Wachtell, Lipton, Rosen & Katz Damon Silvers, AFL-CIO Leo Strine, Delaware Court of Chancery Guhan Subramanian, Harvard Law School Sarah Teslik, Council for Institutional Investors Ralph Whitworth, Apria Healthcare Group and Relational Investors John Wilcox, Georgeson Shareholder ii Session 1: The Basic Pros and Cons of Shareholder Access to the Ballot Panelists: Martin Lipton and Steven Rosenblum, Wachtell, Lipton, Rosen & Katz Lucian Bebchuk, Harvard Law School Moderator: Mark Roe, Harvard Law School Discussion Participants: Robert Monks, Lens Governance Advisors Brian Hall, Harvard Business School Jay Lorsch, Harvard Business School Charles Nathan, Latham & Watkins LLP Joseph Grundfest, Stanford Law School Matthew Bishop, The Economist Allen Beller, U. S. Securities and Exchange Commission Michael Price, MFP Investors Leo Strine, Delaware Court of Chancery Mark Roe: I’m Mark Roe; I’m going to moderate our first panel. Just a few introductory comments; the people on the panel don’t need any introduction. The mechanics: Marty and Steve will talk for about twenty minutes on their topics. Lucian will talk for about twenty minutes on his topic. There’ve been heavy negotiations on the moderator’s authority, and I have much more authority than is typical. I have this bell to keep people quiet after twenty minutes, or if the questions go on too long. After twenty minutes, we’ll have a few minutes of response on either side, and then questions to the people presenting the papers. I think it’s fair to say that Marty Lipton’s been, of the last 25-35 years, the most articulate, thoughtful spokesman for the view of maintaining managerial autonomy in large firms, and Lucian has provided several of the deepest analyses of why firms would be better-run with more authority moved to shareholders’ hands. There’s a surreal quality about addressing these issues today, in that we know the SEC is going to propose a rule that 1 we’re going to be talking about today, but we don’t know the details of the rule, so we can’t focus on details. We can only focus on the big picture. And the surreal quality, I think, corresponds to the panel this morning. In some ways, the big picture is clear. We kind of know what