parent nodes: business judgment | corporation law
proxy contest
“It shall be unlawful for any person, by use of . . . any means . . . of interstate commerce . . . to solicit . . . any proxy . . . in respect of any security” in “contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors”
Securities Act of 1934, § 14(a)
See also inspection rights, shareholder proposals
Covered persons
Persons holding over 5% of a corporation's stock, as well as all institutional investors, must register with the SEC. Securities Act of 1934, §§ 13(d) (5% threshold), 13(f) (institutional investors). See also [Studebaker Corp v Gittlin] (holding that communications to other shareholders in order to meet the 5% threshold to examine shareholder lists under state law counted as impermissible "solicitation" under the '34 Act). A person who violates § 14(a) must start again with proper proxies.
Exemptions to § 14(a) include:i.public statements about how one is going to vote
ii.public advertisements asking to vote one way or another
iii.communications with less than 10 persons
iv.communications with someone with whom shareholder has business relationship (i.e. proxy advisors)
Securities Act of 1934, § 14(a).
Scope of regulations
Note that "solicit(ation)" includes “communications which may indirectly accomplish such result or constitute a step in a chain of communications designed ultimately to accomplish such as result.”
Required disclosures under § 14(a) include:1.an annual report
2.filing preliminary proxy card w/SEC at least 10 days before solicitation
3.director and executive compensation
4.biographical material about directors (including potential misconduct)
Proxy contest rules
Incumbent directors may use corporate funds and resources in a proxy solicitation contest if the sums are not excessive and the shareholders are fully informed. [Levin v MGM]. An alternative rule holds that a corporation may not reimburse either party unless the dispute concerns questions of corporate policy. [Rosenfeld] Note that the scope of "questions of corporate policy" is unclear.
Corporations may reimburse incumbents whether they win or lose; in contrast, a corporation may reimburse insurgents only if they win, and only if shareholders ratify the payment. [Rosenfeld]. While the [Rosenfeld] rule creates an obvious risk of management entrenchment, entrenchment may not be bad if it ensures corporate stability.