April 24, 2012
In the April 19 edition of The New York Times’ DealBook, Harvard Law School Professor Lucian Bebchuk LL.M. '80 S.J.D. 84 defends the work of his Shareholder Rights Project at HLS (see related story). The project is a clinical program that assists public pension funds and charitable organizations in improving corporate governance at publicly traded companies. The SRP’s work during the 2011-2012 proxy season has involved five such organizations, advising them on proposals urging companies to eliminate staggered boards.
In his op-ed, Bebchuk responds to a recent memo criticizing the project—a memo written on behalf of four senior partners of the law firm Wachtell, Lipton, Rosen & Katz, titled “Harvard’s Shareholder Rights Project Is Wrong.”
Bebchuk writes: “[As] the go-to legal counsel for incumbent directors and managers seeking to insulate themselves from removal … it is unsurprising that Wachtell and some of its clients may have a negative view of the large-scale move away from staggered boards taking place in corporate America.” Further, Bebchuk asserts that “… a move to annual elections is viewed by investors as a best practice of corporate governance,” adding that “investors’ support for annual elections is consistent with a significant body of empirical evidence.”
In addition to directing the SRP, Bebchuk, who was appointed William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance in 1998, has been director of the Program on Corporate Governance at HLS since 2003. In February, he testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Financial Institutions and Consumer Protection at a hearing titled “Pay for Performance: Incentive Compensation at Large Financial Institutions.”
Along with several recent working papers and op-eds, Bebchuk is the co-author, with HLS Professor Jesse Fried, of “Pay without Performance: The Unfulfilled Promise of Executive Compensation” (Harvard University Press, 2004).
by Lucian Bebchuk
Staggered boards have long been a key mechanism for insulating boards of publicly traded firms from shareholders. This year, several institutional investors and a program working on their behalf have used shareholder proposals to move a large number of publicly traded firms away from such structures. Despite strong and expected criticism from the usual suspects, shareholders should welcome and support this work.
The Shareholder Rights Project, a clinical program that I run at Harvard Law School, assists public pension funds and charitable organizations in improving corporate governance at publicly traded companies. During this proxy season, we represented and advised five such clients – the Illinois State Board of Investment, the Los Angeles County Employees Retirement Association, the Nathan Cummings Foundation, the North Carolina State Treasurer, and the Ohio Public Employees Retirement System – in connection with their submission of proposals for a vote at the annual meetings of more than 80 companies on the Standard & Poor’s 500-stock index.
The proposals urge companies with a staggered board, which allow shareholders to replace only a few directors each year, to place all board members up for election every year. Such a move to annual elections is viewed by investors as a best practice of corporate governance. By enabling shareholders to register their views on all directors each year, annual elections make boards more accountable to shareholders. ... Read the full article »