Strengthening the Public Company Board of Directors: Limited Shareholder Access to the Corporate Ballot vs. Required Majority Board Independence

Federal regulators continue to capitalize on the onslaught of mas-sive corporate fraud in the United States, promulgating corporate gov-ernance legislation seeking to reform and improve public company boards of directors. This note considers two such reforms, both of which purport to influence the composition of public company boards to im-prove shareholder confidence in corporate management. The first regu-lation, already approved by the SEC, requires majority board independ-ence for publicly-held companies listed on the NYSE and Nasdaq. The second is a proposed amendment to SEC proxy rules to allow direct shareholder access to the corporate ballot for the purpose of facilitating shareholder-nominees to the boards of publicly-held companies. The ef-fectiveness of both regulations is examined under the director primacy model of corporate governance. This note concludes that, while public companies should not be required to place a majority of independent di-rectors on their boards, a narrowly defined access rule to provide share-holders with a proactive means to hold management accountable to its fi-duciary duties is a tenable option. Accordingly, the proposed shareholder access mechanism should be adopted by the SEC.

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