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Everything you always wanted to know about...

...but were afraid to ask

The Annual Meeting Of Shareowners

The Annual Meeting Of

Shareowners

The Council of Institutional Investors is a nonprofit association

of public, union and corporate pension funds with combined

assets that exceed $3 trillion. Member funds are major long-term

shareowners with a duty to protect the retirement assets of

millions of American workers.

The Council strives to educate its members and the public about

corporate governance, and to advocate for strong governance

standards at U.S. public companies. Corporate governance

covers a spectrum of issues — from disclosure to enforcement —

involving the relationship between shareowners, directors and

managers of a company. Good corporate governance fosters

transparency, responsibility, accountability and market integrity.

AcknowledgementsThe council wishes to thank Cornish F. Hitchcock, of the Hitchcock

Law Firm, and David B.H. Martin, partner at Covington & Burling LLP,

for their many contributions to this primer.

©2007 Council of Institutional Investors.


Shareowners

1

2 Overview

3 Rules For Annual Meetings 3 Why Do Companies Hold Annual Meetings?

3 When And Where Will The Meeting Be Held?

4 What Business Will Take Place At An Annual Meeting?

4 How Do I Bring A Matter Before The Annual Meeting?

5 Who Can Vote At An Annual Meeting?

6 When Will You Get Notice Of A Meeting, And What Will It Include?

6 Who Can Attend The Meeting?

6 What If You Can’t Attend?

7 What Happens If A Shareowner Fails To Return The Card Or Only Votes on Certain Items?

8 Is A Quorum Required At An Annual Meeting?

8 How Will The Meeting Be Conducted?

9 What If You Want To Change Your Vote Or Have Not Yet Voted?

10 Who Counts The Votes?

10 What Vote Level Is Required?

11 When Is the Vote Reported?

12 The “Typical” Annual Meeting

13 Things That Go Bump In The Meeting

13 What Does It Mean If The Company Advances The Meeting Date?

13 Can A Company Delay or Adjourn The Meeting?

14 Can A Company Use Parliamentary Rules To Stymie Dissident Shareowners?

14 Can A Shareowner Motion Be Ruled Out Of Order?

14 Can A Company Change The Number Of Votes Required To Approve Shareowner Action?

14 Must A Company Identify The Proponent Of A Shareowner Resolution?

15 Can A Company Deny A Shareowner Access To Its List Of Shareowners?

15 What Happens If A Company Fails To Announce The Voting Results?

15 Can A Company Ignore A Shareowner Resolution That Wins Majority Support?

15 Can A Binding Proposal That Receives Majority Support Be Rescinded?

16 Suggestions For Preparing For A Meeting

18 Appendix: Case Law Concerning Annual Meetings

888 17th St. NW Suite 500

Washington DC 20006

202-822-0800 www.cii.org

Everything you always wanted to know about...

...but were afraid to ask

The Annual Meetings of Shareowners

C o u n C i l o f i n s t i t u t i o n a l i n v e s t o r s


Shareowners

2

Overview

So, you want to do corporate governance — mix

it up with other shareowners, offer your insights

on the direction the company should take?

The chairman’s letter said that last year had been

a challenge but “we are now uniquely positioned

to address our future and recognize the inherent

value of our products, people and services in

today’s global and increasingly networked economy.”

You have voted for everything, packed your bags

and grabbed your ticket. You are off to your first

annual meeting of shareowners.

What should you know about this annual event,

which is as American as pre-season baseball,

April 15th and Mother’s Day? Is it art, art form

or artifice? Legal, legalistic or lawless? Hopeful

or hopeless? Uplifting or a total waste of time?

Like so much of what is part of the balancing act

of corporate governance, the answer is a little bit

of everything. Do your homework, don’t expect

too much, and you may be pleasantly surprised.

Fail to prepare, and you may be caught off guard.

This paper discusses the annual meeting of

shareowners of a public company. There is not

much law here. The corporate code of each state

and the corporate instruments of each company

cover some details. Stock exchanges and the

Securities and Exchange Commission (SEC) have

some relevant rules. As with all matters corporate,

Delaware law has a lot to say because so many

companies are incorporated there. No two meetings

are the same, but there are certain predictable

similarities. There is great latitude as to how a

meeting can be conducted, and this paper

discusses how you can work with that. Surprise

begets suspicion and concern, however, and

companies favor predictability, the appearance of

fairness and decorum. The appendix notes what

some courts have said in this area. This shows

how arguments about annual meetings have been

decided.

A word about terminology. State laws use different

terms to refer to the holders of common stock,

including shareowners, security holders and

stockholders. These terms generally mean the

same thing. The Council of Institutional Investors

uses the term “shareowner” because it connotes

the rights and responsibilities of investors,

especially those — such as our members —

who hold shares for the long haul. Along the

same lines, “charter” will refer to a company’s

basic organizational instrument, recognizing that

state laws also use terms such as certificate of

incorporation and articles of incorporation.

“Corporate instruments” means the charter and

the bylaws of a company. “Company” will refer to

a company with publicly traded common stock.

Finally, a word on the structure of this paper. The

first section walks the reader through the annual

meeting process, with notes and tips for those

whose interest is primarily practical. There is also

commentary that answers the question, “I wonder

why they do things that way?” The idea is to let

readers focus on what’s most important to them

and skip over material that they may already know

or think that they don’t need to know. Sampling

is encouraged. The second section summarizes

what happens at a “typical” meeting, while the

final sections describe some bumps in the road

that shareowners may encounter. The end sections

also suggest ways to prepare for a meeting.

This paper discusses

the annual meeting

of shareowners of

a public company.

There is not much law

here. The corporate

code of each state

and the corporate

instruments of

each company cover

some details. Stock

exchanges and the

Securities and Exchange

Commission have

some relevant rules.

3C o u n C i l o f i n s t i t u t i o n a l i n v e s t o r s


Shareowners

Why Do Companies Hold Annual Meetings?

When you think of the time, energy and expense

that go into an annual meeting, you might wonder

why it is held. At most large companies, the

corporate secretary starts working on the meeting

at least a year in advance. From reserving space to

hiring caterers and vote counters, there are myriad

details and logistics that must be planned. Aren’t

there better things to do with company resources

and talent? The answer is that every state requires

companies incorporated there to hold annual

meetings. Some states have a limited exception

under which shareowners may act by “written

consent,” i.e., by giving approval in writing to

certain agenda items instead of having a meeting.

This is not very practical for a public company,

particularly one in a state like Delaware where

consent to elect directors must be unanimous.

When And Where Will The Meeting Be Held?

To put teeth in the annual meeting requirement,

many states insist that the meeting be held within

a certain time period following the last meeting.

In Delaware, that time limit is 13 months. Under

Delaware law, a failure to call a meeting on time

gives shareowners the right to demand the meeting,

either in court or directly to the corporate secretary.

Stock exchanges generally require public companies

to comply with the state law requirement to hold an

annual meeting.

Most state statutes let companies decide the date

and time of meetings. A good time for the meeting

is shortly after the publication of the annual report

that is required by the SEC. This is also the view of

the New York Stock Exchange (NYSE), which has

rules that urge listed companies to have annual

meetings within a reasonable interval after the

fiscal year ends “so that the information in the

annual report is relatively timely.” Because so many

companies have fiscal years that correspond with

the calendar, annual meetings typically take place

during April, May and June.

The requirement that shareowners receive timely

financial statements means that meetings will

sometimes be delayed past the normal meeting

cycle if a company announces that it is restating

financial results. If a meeting is delayed for this

reason, it could take some months before the

issue is addressed and shareowners receive proxy

materials. This can create tension between state

law, which may require that a meeting be held

within a specified time and the NYSE rule that

a meeting should occur when information in the

annual report is “timely.”

Some states say that the meeting should be held

in the state where the company is incorporated,

unless the company’s corporate instruments permit

otherwise. Most states, however, allow boards of

directors wide latitude in choosing the location.

While most meetings are held in the United States,

some companies occasionally hold meetings at

overseas locations near their facilities. The Council

frowns on this practice, as it makes it hard for

shareowners to participate.

In theory, meetings can even be online. Several

years ago, Delaware amended its corporate law

so that companies incorporated in that state may

dispense totally with live meetings and hold virtual

meetings via the Internet. This option has been

used rarely however, and Council policy opposes

the practice on the ground that it diminishes the

ability of shareowners to interact with management

and directors face-to-face.

NOTE: Some companies supplement their live

meetings by offering Internet webcasts, thus allow-

ing shareowners who cannot attend the meeting

in person to hear what is occurring as it happens.

Check the proxy statement or call the company to

find out whether it offers a webcast.

Rules For

Annual Meetings



Shareowners

4

What Business Will Take Place At An Annual Meeting?

State law requires that the election of directors take

place at the annual meeting. A board may also

propose other actions that require approval under

state law, such as a change in the company’s

charter or a business combination. Shareowners

may also be asked to approve transactions to

comply with stock exchange rules or to qualify for

certain benefits under tax or other laws. A good

example of this involves incentive-based compen-

sation plans for executives. Many companies ask

shareowners to ratify or approve the engagement

of outside auditors as a means of assuring the

auditors’ independence. Finally, there may be

shareowner-sponsored resolutions that require a

vote. These resolutions are sanctioned under the

SEC’s proxy rules, particularly Rule 14a-8 under

the Securities Exchange Act of 1934, which

provides for the inclusion of one, properly submitted,

500-word proposal per eligible shareowner in a

company’s proxy statement, subject to 13 exclusions

appearing in the rule.

Most companies recognize the value of allowing

shareowners to have a dialogue with management

and the board of directors. As a result, often there

is a question-and-answer session that is not part

of the formal meeting.

NOTE: Generally speaking, companies require

shareowners who wish to offer a formal resolution

or similar motion at the meeting to comply with

“advance notice” requirements that appear in the

company’s bylaws and most recent proxy statement.

Shareowners who want to submit a proposal to be

printed in the company’s proxy statement under

SEC Rule 14a-8 must notify the company about six

months before the meeting. Shareowners who do

not want to rely on the company’s proxy materials

(and who may be circulating their own proxy

statement and card) must often give notice 60 to

90 days in advance. As a result of such limitations,

resolutions are rarely offered on the floor.

How Do I Bring A Matter Before The Annual Meeting?

If you have a question or comment about the

company’s operations, you can speak during the

question and answer period. There may be limits

on how much time is set aside for Q&A, limits on

follow-up questions, and it may not be possible to

get answers from individual directors.

If you want to offer a formal resolution that will

be printed and circulated as part of the company’s

proxy materials, you need to comply with SEC Rule

14a-8, which governs such shareowner resolu-

tions. This is a complex subject that is fully treated

in other publications. As of mid-2007. the SEC was

considering changes, possibly significant ones,

to Rule 14a-8. For now, in a nutshell, it specifies

that: The proponent must have held at least $2,000

worth of company stock for one year prior to the

date of submission and must continue to hold

that amount through the date of the meeting.

The proposal can be no more than 500 words

and must relate to issues worthy of consideration



Shareowners

by shareowners and not to personal grievances,

matters that involve the ordinary business of the

company, matters that are unlawful or matters

that were voted in recent years but failed to receive

certain minimal levels of support. Rule 14a-8

contains a list of the 13 such exemptions that a

company can cite to exclude a proposal.

Shareowner proposals must be received by the

company no later than the advance notice deadline

printed in the most recent proxy statement, and the

proponent must appear in person (or via a repre-

sentative) at the meeting and move the proposal.

Under state law, shareowner resolutions must

generally be “precatory,” meaning that they urge

or recommend certain conduct but don’t require it.

State law may permit binding proposals in the form

of bylaw amendments.

Who Can Vote At An Annual Meeting?

You can vote at a meeting if you hold stock of the

company as of a certain cut-off date before the

meeting. This is called a “record date.” A company

needs the leeway of this cut-off because of the

time it takes for transfers of stock to clear and be

reflected on its stock records. State law usually sets

a window in which a board of directors may pick

the record date. Delaware, for instance, says that

the record date should not be more than 60 or less

than 10 days before the meeting. States often permit

companies the discretion to adopt different record

date windows in bylaws.

Given the time required to solicit proxies, the

typical company will have a record date that is at

least 30 days before the meeting. Stock exchanges

also suggest, but do not mandate, this interval.

Companies must give advance notice of record

dates to stock exchanges and various depositories

and proxy agents. Record dates can be changed

after they have been set, but companies try to avoid

this because changes can be technically awkward

and procedurally cumbersome: The meeting may

have to be rescheduled and proxies may have to be

solicited a second time.

Shareowners can find out who else is entitled to

vote. State laws require companies to keep lists of

shareowners who are entitled to vote at meetings.

State laws also entitle shareowners to inspect

corporate books and records.

This right generally includes shareowner lists.

A demand for inspection must be in writing

and must state a proper purpose. Courts have

generally found that communicating with other

shareowners about the business of an upcoming

meeting is a proper purpose.

In addition to state law, the SEC has a rule

(Rule 14a-7) that pertains to shareowner lists.

A shareowner who plans to send soliciting

materials for a meeting to other shareowners may

ask for help from the company. The SEC requires

the company either to mail those materials or to

provide the soliciting shareowner with the list of

record holders for the meeting. Companies must

also generally make lists available to shareowners

for inspection for a brief period immediately prior

to the meeting. The list must be maintained at a

specific place in the city where the meeting is held

or at the meeting site. These laws also require lists

to be open for examination by shareowners at the

time and place and for the duration of meetings.

NOTE: Shareowner lists made available by the

company will list the “record holders” who are

known to the company and not necessarily the

“beneficial owners,” i.e., the shareowners who

actually purchased shares for their own benefit

using a brokerage firm whose name appears on

the company list as the “record holder.”



Shareowners

6

When Will You Get Notice Of A Meeting, And What Will It Include?

Here again, states have only broad guidelines.

They typically require that a notice be in writing

and given to shareowners who are permitted to

vote at the meeting no less than a fixed number

of days before the meeting. Some states permit

companies to pick a notice date that is earlier than

that required by statute. A few say nothing about

notice, leaving it up to the companies to adopt

a procedure, often in the corporate instruments.

There are usually few requirements as to the form

of the notice. It makes sense, however, that it would

include the time, date and place of the meeting.

Although state law or a company’s corporate

instruments generally do not require it, most

companies identify the items that will come before

the meeting. Giving notice of the agenda items can

protect a company from the charge that the proxy

materials are false and misleading if they do not

adequately disclose the items on which shareowners

are asked to vote. A notice generally will apply

only to the meeting being called. Thus, if a meeting

is rescheduled before it is actually convened, a

company will need to send out a new notice. On

the other hand, if a meeting is lawfully convened

and a quorum is present, the meeting may be

adjourned or continued, and the original notice

should suffice to support any action taken at the

continuation of the adjourned meeting.

Who Can Attend The Meeting?

The people who are always entitled to attend a

meeting of shareowners are the shareowners of

record or their proxies. All others attend at the

discretion of the company. This can sometimes

pose a problem for shareowners who are the

beneficial owners, but whose shares are held in

the so-called “street name” of the record holder,

i.e., the shareowner’s brokerage firm. As a result,

a beneficial owner can, at least in theory, be denied

access to a meeting unless he or she obtains specific

authorization from the record holder. Obviously,

companies do not wish to exclude the real owners of

stock from the meeting, which is why they usually

ask shareowners to bring some proof of ownership to

the meeting, such as a recent brokerage statement.

Specific requirements are usually set out at the front

of the company’s proxy statement.

Note that some companies require shareowners

to present an admission card to enter the meeting.

The card is usually stapled to the proxy statement

that shareowners receive, and notice of this

requirement is explained in the proxy.

TIP: If you have any questions about what’s needed

to get in the door, or if the card that came with

your proxy statement somehow got tossed out by

mistake, contact the corporate secretary (whose

name often appears on the “notice” portion at

the front of the proxy statement) or the investor

relations department to check on the requirements

or to order a new card. It’s generally a good idea

not to wait until the last minute, particularly if the

company has to mail you a new card. Note too

that shareowners cannot bring a guest or personal

representative (such as a lawyer) to the meeting. If

you have any questions about a specific company’s

policy, contact the corporate secretary or investor

relations department.

What If You Can’t Attend? Can You Send Someone In Your Place?

With a little advance planning, you can send

someone in your place. Technically speaking, a

record holder can execute a “legal proxy” empow-

ering a representative to attend the meeting and to

vote on the record holder’s behalf. It is possible,

however, for shareowners who are not record



Shareowners

holders to obtain a “letter of attendance” from

a party who can attest to their beneficial owner

status that permits their designee to attend the

meeting on their behalf. The designee may be able

to speak and ask questions, but problems may arise

if he or she wants to vote shares at the meeting.

Generally speaking, a shareowner who wants to

send a representative should contact the corporate

secretary or investor relations department and vote

the shares in advance.

State laws provide for voting “by proxy.” This

means any record holder can vote proxies ahead

of time and skip the meeting. The SEC has detailed

rules for the solicitation of these proxies from

shareowners of public companies. A discussion of

these rules is beyond the scope of this paper, other

than to note that they require the delivery of an

extensive proxy statement by companies before the

annual meeting. These rules also govern solicita-

tions by shareowners, but their compliance burden

is less exacting than on a company, as long as the

shareowner is not circulating his or her own proxy

card. A proxy will not be valid unless executed by

the shareowner of record, and generally the latest

dated proxy controls. This means that if you vote

one way in advance of the meeting and then change

your mind, you can request and mail in a later proxy

card, which will supersede your earlier votes, or you

can go to the meeting and vote there. In contested

matters, such as when an independent slate of

directors challenges the board’s candidates, it is not

uncommon to receive competing proxy statements

and proxy cards (the latter often in different colors)

from each of the contestants.

Historically, proxies have had to be manually

signed. Keeping pace with technology, however,

Delaware and other states now permit electronic

and other non-written forms of proxy, provided

there are validation procedures that identify the

shareowner. No summary of the precise requirements

for the form, content and validity of proxies is

adequate without a close review of the particular

state law that governs. In practical terms, many

companies permit shareowners to vote their shares

electronically over the Internet. The proxy statement

will provide practical advice on how to do so, and

that statement may generally provide the recipient

with an identification number to enter in order to

validate ownership.

COMMENTARY: Interestingly enough, state laws

do not require a record holder of stock to receive

voting instructions from a beneficial owner.

Effectively, this is left to the parties themselves.

Brokers or banks that act as record holders

generally distribute a company’s proxy materials

to their clients, who are the beneficial owners who

are entitled to vote. NYSE rules that govern brokers

require them to seek voting instructions from account

holders if the broker does not have discretion to

vote those shares. Shareowners generally return

the voting cards provided by the broker, and the

broker tallies the results, which are transmitted to

the company shortly before the meeting.

What Happens If The Shareowner Fails To Return The Card Or Only Votes On Certain Items?

A broker’s obligations are spelled out under NYSE

Rule 452. In brief, if specific instructions are not

received 10 days before the meeting, brokers may

vote the proxies on “routine” matters.

The Council has long opposed broker discretionary

voting because it undercuts the integrity of the vote.

It also is a thumb on the scale for management

since brokers almost always vote as the company

recommends. In particular, exchange rules have

traditionally defined the election of directors as a

“routine” matter in which uninstructed broker votes

may be cast. However, as more and more companies

move towards a “majority vote” requirement for



Shareowners

8

directors in uncontested elections, some have asked

whether this policy makes sense, since uninstructed

broker votes can tip the balance in a close tally of

“for” and “against” votes. The NYSE in May 2007

proposed amending the broker-vote rule to redefine

director elections as “non-routine.” This would

bar brokers from voting shares without instruction.

The SEC has yet to approve the change.

When a client fails to tell the broker how to vote

on non-routine items, the broker will deliver

what is known as a “broker non-vote.” Such votes

may be counted for the purpose of establishing

whether a quorum is present. Making quorum can

be tricky when the business of the annual meeting

is not controversial.

Is A Quorum Required At An Annual Meeting?

Yes. A quorum is required to transact business at

an annual meeting. State laws generally set minimum

percentage levels for a quorum but let companies

set higher levels in corporate instruments. Delaware,

for instance, says a company’s quorum percentage

may be set in its charter or bylaws, but may not be

less than one third of the shares entitled to vote.

If the corporate instruments are silent, the quorum

requirement under Delaware law is satisfied if a

majority of the shares entitled to vote are present,

in person or by proxy, at the meeting. Abstentions

and broker non-votes generally count toward a

quorum, even if they may not be considered in

calculating the vote count on specific proposals.

Although a quorum is not required until the

beginning of the meeting, companies generally

like to achieve quorum through proxies as soon

as possible. This can be a challenge. The majority

of votes typically are not received until the end of

the solicitation period. Institutions tend to vote later

in the process, and brokers may not submit votes

until the last 10 days before the meeting unless

voting instructions from beneficial owners have been

received before then. This means that a company

may not be sure that it will have a quorum until

the last days before the meeting, often a source of

heartburn for the corporate secretary.

States differ on whether shareowners can break

a quorum by withdrawing from a meeting.

Delaware cases have found that once established,

a quorum is valid for the entire meeting even if

shareowners leave or the meeting is adjourned

and some shareowners do not return for the

reconvened session.

How Will The Meeting Be Conducted?

There are virtually no legal requirements as to

how a company conducts an annual meeting.

Some companies prescribe procedures In bylaws.

Most adopt a much more flexible approach,

however, and run meetings according to rules of

procedure that are announced at the beginning

of the meeting or described in meeting handouts.

As a practical matter, the conduct of the typical

meeting is in the hands of the chair, who is

responsible for preserving order and setting the

tone and style of the meeting. All rulings on both

substantive and procedural matters are made by

the chair. He or she has wide latitude in making

rulings, although old case law in some states

says that the chair must conduct meetings in an

impartial and appropriate manner and make rulings

in good faith. That is not a hard standard to meet,

and most states, including Delaware, have no

statute or case law that discusses this point directly.

Wide procedural latitude also applies to formalities

regarding introduction of shareowner business.

A company typically establishes a procedure to

call upon a moving shareowner, who is given a

set amount of time (often two or three minutes)

within which to introduce a motion. There is no

requirement that motions be seconded, although

many lawyers and participants in shareowner

meetings insist otherwise. The SEC has stated that



Shareowners

shareowner resolutions submitted for inclusion

in a company’s proxy materials do not require a

second in order to be validly presented.

NOTE: As discussed earlier, a company may adopt

“advance notice” requirements under which a

shareowner must notify the company at least 60

or 90 days before the meeting that the shareowner

intends to offer a resolution at the meeting. (This

is distinct from questions or comments that a

shareowner may wish to offer during a question-

and-answer session.) Advance notice provisions,

unless adopted in the heat of battle to defeat a

specific proposal, are generally valid and can

serve as the basis for the chair to rule out of order

any resolution that does not comply with those

requirements. Advance notice provisions are

generally set out in a company’s charter or bylaws

and summarized in the company’s most recent

proxy statement.

COMMENTARY: Although many companies do use

Robert’s Rules of Order, the best procedures are not

parliamentary for several reasons, and a committee

of the American Bar Association has recommended

against such procedures. Parliamentary procedures

are unnecessarily complicated for a shareowners

meeting. Procedures such as Robert’s Rules were

developed for deliberative bodies in which each

member has one vote. Finally, parliamentary

procedures don’t work well in the context of a

meeting where many of the votes have been cast

by proxy. The requirement of a second is a good

example of a parliamentary device that is at best a

procedural misfit in this area, as it was developed

to assure that more than one member of a large

group is interested in taking up a matter before

putting it before the entire group. Particularly at

meetings that are lightly attended, and where

most of the shares have been voted in advance,

requiring a second can frustrate the presentation

of an otherwise valid shareowner resolution

on which the vast majority of shareowners have

already voted by proxy.

proxy. As a rule, votes will not be accepted after

the chair closes the polls. Delaware actually

requires an announcement at the meeting of the

date and time of the opening and closing of the

polls for each matter put to a vote. Curiously, even

here, however, state by state review is important.

There have been instances upholding the acceptance

of votes after the closing of the polls and before the

announcement of votes.

What If You Want To Change Your Vote or Have Not Yet Voted?

If a shareowner has already sent in a proxy and is

satisfied with that vote, there is no need to vote

at the meeting. If the shareowner wants to change

his or her vote, the meeting is the last opportunity

to do so. Some states, including Delaware, require

the use of written ballots at the meeting, unless

otherwise provided in the charter or bylaws.

Proxy holders and shareowners who have not yet

voted should complete the ballots. If a shareowner

previously voted by proxy, casting a ballot or

another proxy at the meeting will revoke the earlier



Shareowners

1 0

Who Counts The Votes?

Again, this depends on state law, but generally a

company has broad discretion on who tabulates

votes at an annual meeting. Some states, including

Delaware, require companies to appoint inspectors

of election. Inspectors may be elected or appointed

at a meeting, but most companies will designate

inspectors in advance of meetings so that proxies

can be inspected for validity. Inspectors do not

have to be shareowners and may be employees of

the company.

Shareowners have complained, however, when a

company’s employees or other insiders counted

the vote, particularly on contested matters. Chief

concerns have been the loss of voting anonymity

and the lack of the appearance of objectivity.

Of greater concern are cases where shareowners

complained that advance knowledge by a company

of how specific shareowners were voting led to

inappropriate arm-twisting. Many companies

have responded to these concerns by adopting

confidential voting procedures under which the

identity of the voting shareowner is secret. These

companies often take pains, however, to ensure that

the procedures do not undercut those shareowners

who wish to use the proxy voting process to send a

specific message to management.

What Vote Level Is Required?

It depends. Each state has its own requirement

for the minimum level of votes needed to pass

different kinds of proposals. Many states allow

companies to increase statutory levels in corporate

instruments. An alternative approach allows

a company to set the vote level required for a

proposal, with a default to the statutory standard

where that discretion is not exercised. Various

vote level tests at state law include the majority

(or some other level) of the shares present, of the

shares outstanding or of the shares voting.

Applying these tests may be complicated by

uncertainty under state law about how to treat

abstentions and broker non-votes. For instance,

if the requirement is a majority of the outstanding

shares, each abstention and broker non-vote

has the effect of a vote against a proposal,

whereas if the required vote level is a majority

of the shares voted on a matter, then abstentions

and broker non-votes don’t affect the outcome

because they do not count. Finally, if a proposal

requires a majority of the shares present at the

meeting, it may well be that an abstention is

deemed to be a share present, but a broker

non-vote is not, even if both are considered

present for quorum purposes.

For some significant items (such as whether a

classified board structure should be changed to

require all directors to be elected annually), a

“supermajority” may be required. This level may

1 1C o u n C i l o f i n s t i t u t i o n a l i n v e s t o r s


Shareowners

be two-thirds or 80 percent of the shares voted or

outstanding shares, depending on the company’s

charter or bylaws. Whatever specific rule applies

in a given case, the SEC requires that all of this be

clarified in the proxy statement.

The election of directors is subject to different

requirements. At most companies, directors are

elected by a plurality of the votes cast. This is

academic if the number of nominees is the same

as the number of vacant seats; all a nominee needs

is one vote to be seated. When there is a contested

election, plurality voting works interesting results,

including the possibility that some directors could

be elected without winning majority support.

This is particularly the case for a company with

cumulative voting, where a shareowner can cast

all possible votes for board vacancies for fewer

than all candidates, a distinct advantage when

trying to elect a minority slate.

Technically speaking, a shareowner’s only choice

is to vote “for” a director, “withhold” support, or

abstain. A “withhold” vote is not the same as a

“no” vote, and thus it is possible for a director to

be elected even if the “withhold” vote exceeds the

“for” vote. This anomaly has fueled the widespread

push by many activist investors for companies to

adopt a “majority vote” standard for uncontested

director elections. At companies that have changed

their bylaws or charters to specify majority voting,

shareowners have the option of voting “against”

a director and directors are elected only if they

garner more “for” votes than “against” votes. Other

companies have adopted the majority standard as

a policy, meaning that plurality voting still applies

but a director who receives a majority “withhold”

vote must tender his or her resignation. As of

mid-2007, more than half of all S&P 500 companies

had adopted majority voting.

When Is The Vote Reported?

Companies often announce voting results on

each tem at the end of the meeting. Sometimes,

the company provides the preliminary vote totals

for each item, and sometimes it simply states

whether or not an item has been adopted.

A company must report final vote results in its

quarterly report to the SEC (Form 10-Q) for the

quarter in which the meeting was held. For many

companies, this means the middle of August,

following a spring meeting. Some states require

an earlier an-

nouncement to

shareowners.



Shareowners

1 2

The “Typical” Annual Meeting

While no one annual meeting will be just like

another, they share some predictable features. Most

companies prepare extensive schedules, outlining

what steps to take to prepare for the annual meet-

ing. Similarly, most companies craft detailed scripts

for the meetings and often rehearse directors and

management on how meetings should be run.

This includes reviewing appropriate responses to

questions and other possible meeting scenarios.

In making these preparations, companies consult

with attorneys, accountants and other sources (such

as the American Society of Corporate Secretaries)

on meeting practices and procedures.

This results in certain predictable common

denominators. Companies typically mail notices

and proxy statements for meetings 35-40 days

before the meeting. Most use a combination of

first and third class mail to send annual meeting

materials. SEC rules let companies avoid the cost

of mailing proxy materials to their shareowners if,

at least 40 days before the meeting date, they mail

a “Notice of Internet Availability of Proxy Materials”

advising shareowners where to go on the Internet

to obtain a complete set of the proxy materials.

Shareowners who want paper copies of the proxy

materials must request them from the company.

Annual meetings are most often held in the spring,

with May being the most popular month. Because

the board of directors is likely to have a meeting

the same day, the shareowners meeting is usually

in the morning. Although companies sometimes

hold meetings in out-of-the-way locales, the vast

majority of meetings are held in places that have

some logical and convenient connection with the

company’s business or shareowner base. Some

companies believe there is a benefit to moving the

meeting to a different location each year, although

this is a logistical challenge and probably more

costly. At most big companies, meetings tend to

last one to two hours. Smaller companies are more

likely to be finished sooner. Most companies provide

refreshments. Large companies often need additional

time to reconcile proxies received just before or

at the meeting. If so, meetings are adjourned and

continued at a later date, usually in the corporate

offices and outside the presence of shareowners for

the express purpose of receiving the final tally from

the inspector.

Because the annual meeting is a major event in

the company’s business year, most companies

permit reporters to attend and often invite them.

Larger meetings have ushers, ballot collectors and

greeters. Security personnel may also be on hand,

although the extent of their presence may not be

apparent. Don’t be surprised to encounter careful

check-in procedures.

The first item on the agenda is usually the election

of directors, which is the main purpose of the annual

meeting. Most large companies also ask shareowners

to ratify and approve the engagement of auditors.

Other possible agenda items include approval of

employee benefit plans and amendments to corporate

instruments, and consideration of shareowner

proposals. Procedural rules may be published in

advance or announced. These may include limits on

the time a shareowner can speak (usually between two

and five minutes) and on the number of times a share-

owner can address the meeting on any agenda item.

The typical company scripts its annual meeting

tightly. Even so, usually there is time at the end for

questions from the floor. There may be limits on the

subjects that can be raised and the length of time

for questions. The chairman of the board may give

a talk, replete with charts or videos, about what

has happened at the company over the past year.

This tends to occur while the votes are being tallied.

A company-appointed “transfer agent” often serves

as inspector of elections. The transfer agent checks

proxies as they are coming in before the meeting

and attends the meeting to tabulate and announce

the preliminary vote count. Validating proxies is

time-consuming; expect results to be announced

after the meeting. And companies often announce

only preliminary vote counts. Final counts are

completed within days of the meeting. The results

may or may not be released before the official

disclosure deadline, which is the company’s

quarterly report (Form 10-Q) to the SEC.

Most meetings are routine, low-key affairs. A small

percentage (around 10 percent) are contentious, or

even raucous, with demonstrations in or outside the

meeting site.

The “Typical” Annual Meeting



Shareowners

Things That Go Bump In The Meeting

Companies have broad procedural discretion

at annual meetings and no interest in airing

controversies in public. So it is not surprising that

sparks sometimes fly between shareowners and

companies. Shareowners should be prepared

for potential procedural gamesmanship, just as

meeting chairs prepare for the possibility of unruly

shareowner conduct. Below are some examples:

What Does It Mean If The Company Advances The Meeting Date?

It may be to gain timing advantages that frustrate

submission of shareowner resolutions. Most

advance notice bylaw provisions require share-

owner resolutions to be submitted at least a

certain number of days before the annual meeting.

In attempting to comply with this advance notice

requirement, a shareowner generally expects that

the annual meeting will occur at the same time

as the prior year’s meeting. This expectation

can be upended if a company sets an earlier date.

Recently, a company advanced the meeting and

announced the date change in an SEC filing

which escaped the attention of a shareowner that

submitted a resolution after the new deadline. The

company barred the resolution from the meeting.

The moral: A committed shareowner must monitor

all company announcements, which can be done via

online watch services. Some courts have frowned

on this kind of disenfranchising gamesmanship.

Can A Company Delay Or Adjourn The Meeting?

There have been instances, particularly with

contested solicitations, when companies have

postponed or adjourned meetings, usually to allow

for more time to solicit votes. Adjourning a meet-

ing is not prohibited per se. But this tactic may be

illegal, at least in Delaware, if the primary purpose

of the adjournment is to thwart or interfere with

the shareowners’ right to vote and if there is no

compelling justification for the adjournment, such

as evidence of vote fraud, a disruption in the proxy

process, or the absence of a quorum.

States such as Delaware require that if the annual

meeting is not held on the date designated, the

directors must hold a meeting as soon thereafter

as convenient. If a shareowner meeting is delayed

for too long, proxies and the record date for the

original meeting may expire before the rescheduled

meeting can be held. This would lead to costly

re-solicitation, which in itself might be sufficient

to defeat the efforts of dissident shareowners.

Shareowners don’t have many alternatives in these

circumstances other than to appeal to the courts,

some of which have disapproved of tactics that

disenfranchise shareowners.

As noted earlier, there may be times when the

meeting is postponed because the company has to

restate its financial results in order to solicit proxies

on the basis of timely financial statements.

Things That Go Bump In The

Meeting



Shareowners

1 4

Can A Company Use Parliamentary Rules To Stymie Dissident Shareowners?

Several years ago, a board of directors defeated two

shareowner proposals by invoking a requirement

under Robert’s Rules that all resolutions be seconded.

This would appear to be contrary to SEC rules

specifying that shareowner proposals submitted

in compliance with SEC Rule 14-8 do not require a

second in order to be properly presented. Thus, it

is prudent, if possible, for a shareowner proponent

to arrange to have a second in place. A company

should establish and announce the procedures that

will be used at an annual meeting, particularly

when those procedures have the potential to limit

shareowner participation. A shareowner faced with a

last-minute imposition of a previously unpublished

procedural hurdle should request a brief tabling of

the motion to allow for time to resolve the matter.

This would include obtaining a second from another

shareowner at the meeting. The staff of the SEC

has said that shareowner proposals do not require

seconds under SEC rules but the courts have not

ruled on that point definitively.

Can A Shareowner Motion Be Ruled Out Of Order?

It is not unusual for an unexpected shareowner

motion or resolution from the floor to be ruled out

of order. Sometimes such rulings are more the

result of overreaction to the unexpected — company

chairs abhor surprises at annual meetings—than

a measured response. Generally, however, the

chair has such wide latitude that any ruling that

is not blatantly unfair or unlawful will be upheld.

A shareowner’s best strategy to avoid the surprise

element is to consult the bylaws and most recent

proxy statement to learn of any advance notice

requirements (see above) and also to contact the

company’s corporate secretary or investor relations

department before the meeting to discuss appropriate

procedures with respect to an upcoming motion or

resolution. This may also enhance the shareowner’s

understanding of the procedures by which a

company intends to run its meeting.

Can A Company Change The Number Of Votes Required To Approve Shareowner Action?

Typically, state law sets the required level of

approval for various shareowner actions, with many

states permitting companies to adopt different levels

in corporate instruments. Because companies may

let directors amend bylaws, statutory approval levels

may be changed without shareowner approval.

As a result, when faced with an unwanted proposal,

a company can increase the voting requirement to

a level that virtually ensures that the proposal will

fail. A company is not required to disclose changes

in bylaws as they are made. Therefore, the earliest

a shareowner is likely to learn of an increased voting

requirement is in the company’s proxy statement,

where SEC rules require its disclosure. Any change

in the voting requirement after mailing of a proxy

statement would probably require supplemental

disclosure. Disclosure alone cannot cure substantive

inequity, however. When it can be shown that

procedural changes were implemented to thwart

an upcoming shareowner vote, remedies may be

available under state law through the courts.

Must A Company Identify The Proponent Of A Shareowner Resolution?

No, SEC rules don’t require it, even if the

shareowner proponent requests it. What’s more,

if several shareowners “co-file” the resolution

with a lead filer, there is no need to identify all



Shareowners

filers. However, the company must agree to provide

the name(s) upon request. Shareowners have

claimed that companies hide behind this rule to

undercut the credence of proposals submitted by

prominent and well-respected shareowners. The

shareowner’s identity can be announced by the

shareowner (or others) prior to the meeting and

will be announced at the meeting.

Can A Company Deny A Shareowner Access To Its List Of Shareowners?

State laws and SEC rules should allow a share-

owner to find out who else can vote sufficiently

in advance of a meeting to permit effective

solicitation regarding an upcoming vote. There

are cases, however, when companies have delayed

giving shareowner lists long enough to frustrate

opposing solicitations. Some of that frustration

may be relieved by a proxy solicitor that can piece

together identities of substantial shareowners from

public information. Beyond that, litigation is the

only effective solution.

What Happens If A Company Fails To Announce The Voting Results?

The only universal requirement regarding the

announcement of voting results of annual meetings

is the SEC’s: Companies must report the results

of shareowner meetings in their reports for the

quarters in which the meetings occur. Quarterly

reports for the quarter ending June 30, the quarter

in which most annual meetings take place, are

due on August 14. There is nothing to prevent a

company from releasing results earlier. It is also

highly likely that a shareowner’s right to inspect the

books and records of a company encompasses the

right to see the minutes or report of the inspector

for the annual meeting. Some states require voting

results to be disclosed to shareowners or require

preparation of a meeting record.

Can A Company Ignore A Shareowner Resolution That Wins Majority Support?

Yes. Companies are not democracies and need not

adopt precatory (advisory only) resolutions that

receive majority support. This may make for bad

shareowner relations but is perfectly within the

bounds of corporate law, unless the failure to

adopt involves a breach of fiduciary duty. This is

unlikely given the substantial deference the courts

have shown officers and directors under the

business judgment rule. That legal principle

holds that officers and directors are not liable for

losses incurred in corporate transactions that are

within their authority so long as they acted in good

faith and with reasonable skill and prudence.

Can A Binding Proposal That Receives Majority Support Be Rescinded?

State laws generally give shareowners and directors

both the power to adopt binding bylaw proposals.

While most shareowner resolutions are precatory —

that is, they simply recommend certain action —

some resolutions propose binding bylaws. It is

not entirely clear whether a corporate board may

undercut binding shareowner-proposed bylaws by

repealing them immediately after their adoption by

shareowners. Some states have adopted statutory

provisions preventing this if the bylaw contains a

provision prohibiting such repeal.

Delaware and New York, however, are not yet among

those states. As a result, the legality of board repeal

of binding shareowner proposals often is uncertain.



Shareowners

1 6

Suggestions For Preparing For A Meeting

Given the balance of procedural power at annual

meetings, it is clear that shareowners should

not expect the occasions to be models of either

parliamentary or democratic grace. Companies

understand their mandate to hold annual meetings

and regard them as useful shareowner relations

functions. Many shareowners attend annual

meetings to hear directors and officers discuss the

company’s business, meet other investors and to

personalize their ownership. Other shareowners,

however, attend meetings to express views, ask

questions and perhaps do business. Some of

these investors may also be even more interested

in the publicity and notoriety they can gain for

themselves in advancing their causes in an open

forum. Companies generally are not eager to engage

in public confrontations and are even less likely to

transact business that is unscheduled. This predict-

able company attitude may reflect legitimate interests

in conducting a professional meeting and not

considering items for which proxies have not been

solicited. It may also be that a company is dodging

public accountability with procedural finesse.

A shareowner who is interested in a responsible

presentation of an appropriate Issue can take steps

to maximize the possibility that the matter will be

dealt with successfully. Here are some pointers:

1. Understand the rules under state

corporate law

All annual meetings are creatures of state

corporate law. There may be very little of it,

but whatever exists will govern the situation.

Most shareowners lack the resources and legal

grounding to review case law, but the statutes

that affect companies in the state where they

are incorporated are readily available in a law

library or on the Internet. These laws are usually

well indexed and, particularly for the important

states, digested in generally easy-to-understand

summaries. Some companies produce such

digests. Shareowners should look especially at

how votes are cast and counted.

2. It may be useful to review the

company’s charter and bylaws

The charter or articles of incorporation would

be a matter of public record in the state of

incorporation and would be available to any

shareowner who requests them. Companies

are required to file charters and bylaws with

the SEC as exhibits to periodic reports. Check

the company’s most recent annual report

(Form 10-K) because it contains a list of exhibits

that tells you where to find the charter and

bylaws if they were included in another SEC

filing. If the charter or bylaws were part of an

SEC filing in 1994 or thereafter, they should

be available on the Internet through the SEC’s

EDGAR system (www.sec.gov).

Because a charter cannot be amended without

shareowner approval, shareowners will usually

have a current understanding of its contents.

But companies often can amend bylaws

without shareowner approval, so be on guard

for last-minute amendments. If the company

does change the rules at the last minute and

if that change affects the shareowners’ ability

to vote on a matter, there may be grounds for

a legal challenge. And a company’s failure to

advise the proponent may relate to whether the

company acted in good faith and fairly.

In reviewing the corporate instruments, pay

particular attention to the provisions relating to:

• the notice of the annual meeting and any

related provisions dealing with postponement

or advancement of the meeting by the board;

Suggestions For

Preparing For A

Meeting



Shareowners

• notice of nominations or business to be

conducted at shareowners meetings;

• absolute majority or super-majority

requirements for shareowner proposals;

• special voting plans that give certain

classes of shares different voting power

from other classes of shares; and

• restrictions on holding meetings of

shareowners outside the jurisdiction

of incorporation.

3. Watch your company’s filings and

announcements

Not long ago, it often was hard to find out

what a company had announced. Press releases

weren’t always picked up. Paper SEC filings

were slow to hit the public document services.

Today, the Internet and electronic filings make

this less of an issue. Any shareowner who

plans to participate in an annual meeting

should be on guard online to learn what a

company is saying publicly.

4. Ask for the annual meeting procedures

Companies should have established procedures

for the conduct of annual meetings. These

are generally published and shared with

shareowners at the meeting, although it is

certainly reasonable for a shareowner to ask

the corporate secretary or investor relations

department for a copy in advance. If the company

refuses to distribute a copy of the procedures

before the meeting, it may be possible to learn

from these offices how the company intends

to handle certain matters (such as questions

from the floor). Generally, as with requests for

bylaws, any record of a responsible attempt to

participate in a meeting will help a shareowner

who subsequently is frustrated by a company’s

high-handed behavior.

5. Work out an agreement for procedures

In a contested election, it is not unusual for a

company and the dissident shareowners to forge

agreement on the procedures that will govern

the election, including the actual conduct of the

meeting. There is no reason why this model can

not be used in a different context, for instance

in connection with a shareowner proposal or

a floor resolution. Whether a company will

consider this to be in the best interests of the

meeting will depend on the circumstances.

Given a company’s desire to maintain an orderly

meeting, a strong-willed shareowner may easily

persuade a company that an agreement on fair

procedures is in everyone’s best interests.

6. Instruct your brokers on how to vote

Only shareowners of record are entitled to vote.

When shares are held in “street name,” the

broker must solicit instructions from beneficial

holders on how to vote on all matters and

may not vote on “non-routine” items without

instructions. Even if the shareowner plans to

attend the meeting, it is a good idea to give the

broker instructions on how to vote the shares,

to avoid any confusion.

7. Get the power from the record holder

to attend the meeting

Companies are only required to admit record

owners, or their designees, to annual meetings.

Shareowners who hold shares in “street name”

and want to attend the meeting should get a

letter or simple power of attorney from the

broker, a proxy signed by the broker or a recent

statement from the brokerage firm showing

ownership of the company’s shares. Contact the

company ahead of time to learn what will be

required at check-in.



Shareowners

1 8

Apprahamian v. HBO & Co., 531 A.2d 1204 (Del. Ch. 1987)

Atterbury v. Consolidated Coppermines Corp., 20 A.2d 743 (Del. Ch. 1941)

In Apprahamian, HBO notified stockholders on

the day before its scheduled annual meeting that

the meeting would be postponed for five months.

Immediately prior to the decision to postpone,

the incumbent board had received a report from its

proxy solicitor suggesting that the re-election of

the board was in doubt. The court declined to apply

the business judgment rule since the members of

the board who postponed the annual meeting were

up for re-election and were therefore “interested”

in the outcome of the election. The court instead

applied an intrinsic fairness test and enjoined the

directors’ attempt to postpone the meeting.

The court found that the business judgment rule

does not confer any presumption of propriety on

acts of directors in postponing annual meetings.

Some days prior to the annual meeting, a group of

shareholders sought to obtain revocations of proxies

in order to prevent the attendance of a quorum at the

scheduled meeting. The shareholders wished to delay

the meeting until they might have an opportunity to

inform the shareholders concerning an affair at the

company’s mine. The shareholders communicated

with numerous other shareholders, requesting them to

revoke their proxies previously sent to the company’s

proxy committee. Many proxies were revoked, but

some revocations weren’t received by the corpora-

tion or by any of the proxy committee before the

meeting assembled. A shareholders’ meeting was

called and then adjourned, and the proxy committee

gave a report that a quorum was not present.

The committee later reconvened the meeting and

amended the report, stating that a mistake had

been made and that a quorum was present.

The court held that the report of the existence or

non-existence of a quorum was not a matter of

voting or balloting. Amending the report did not

Instead, the burden of persuasion must be on those

seeking to postpone annual meetings of stockholders

to show that postponement is in the best interest

of the shareholders. The court further noted that

“The corporate election process, if it is to have any

validity, must be conducted with scrupulous fairness

and without any advantage being conferred or

denied to any candidate or slate of candidates.

In the interest of corporate democracy, those in

charge of the election machinery of a corporation

must be held to the highest standards in providing

for and conducting corporate elections. When the

election machinery appears, at least facially, to

have been manipulated, those in charge of the

election have the burden of persuasion to justify

their actions.”

reopen the meeting to permit more people to

attend, but merely attempted to remedy what had

been a miscount of the persons who already had

been there. The court also stated that subsequent

withdrawals or revocations of proxies could not

destroy a quorum, once present. A shareholder

or proxy holder, once having attended a meeting,

should be deemed present for quorum purposes,

in the absence of unusual circumstances.

In other findings, the court said that treasury shares

cannot be voted at an annual shareholders’ meeting,

and hence should not be counted in computing the

number of shares necessary to constitute a quorum.

Also, as a general rule, when corporate stock is

recorded in the name of a partnership, and a proxy

is signed in the partnership name, it will be presumed

that the signature was authorized. If a form of regis-

tration is chosen which does not reveal the relationship

of the real owner, the real owner necessarily runs

risks that his interests may be prejudiced by the

acts of the holder of record. In the absence of an

objection, consent would ordinarily be presumed.

Appendix: Case Law

Concerning Annual

Meetings



Shareowners

Blasius Industries, Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988)

Duffy v. Loft Inc., 152 A. 849 (Del. 1930)

Gintel v. XTRA Corporation, (Del. Ch. Feb. 27, 1990) (oral ruling)

Gries v. Eversharp, Inc., 69 A.2d 922 (Del. Supr. 1949)

In Blasius, a Delaware court adopted an additional

test in cases where actions of a board of directors

may undercut the ability of shareholders to vote.

The case involved a consent solicitation by Blasius

Industries, a shareholder of Atlas Corporation, to

expand the size of the Atlas board from seven to

15 members (the maximum permitted by Atlas’

charter) and to fill the new vacancies with nominees

of Blasius. The Atlas board responded by amending

Atlas’ bylaws to enlarge the existing board of directors

to nine members and appointing persons to fill the

Duffy involved a question of whether there was a

quorum at the shareholders annual meeting after

stockholders originally in attendance voluntarily

withdrew in an attempt to break the quorum and

prevent the election of directors. The court found

that a quorum once present cannot be destroyed by

subsequent withdrawals or revocations of proxies.

The court further stated, “When it is clear that a

In Gintel, two days before the scheduled meeting

date, the board postponed the meeting for 30 days.

The board claimed this would afford the share-

holders time to become informed of a decision to

pursue an extraordinary transaction and would also

In Gries, the directors postponed the annual meeting

one week at a time when it was still possible to

hold the meeting when originally scheduled. The

court held that the rescheduling of the meeting was

invalid. Directors of a corporation may not postpone

a scheduled annual meeting as long as it is possible

to hold the meeting at the time originally scheduled.

new vacancies. This action would have prevented

Blasius from taking control of the board.

The court set aside the actions of the Atlas directors

increasing the size of the board. In so doing, the

court adopted a new test: a board that acts “for the

sole or primary purpose of thwarting a shareholder

vote” must overcome “the heavy burden of demon-

strating a compelling justification for such action.”

Therefore, when defensive measures purposefully

disenfranchise shareholders, the board of directors

must satisfy the “compelling justification” standard.

majority of the stock of the corporation was

present, either in person or by proxy, at a meeting

of stockholders regularly called for the purpose

of electing directors, and that an election was held,

it should not be declared invalid because certain

stockholders holding proxies for stock necessary to

make a quorum, and in attendance at the meeting,

declined to submit their proxies to the meeting.”

preserve the record date and the effectiveness of

proxies already received. The court found that the

postponement should only have been for 15 days

which was long enough for the shareholders to

become informed.

The court pointed out that a different holding

would “authorize directors to change a meeting

date for any year, at any time in advance of a

meeting, for any reason of convenience to the

directors, provided no fraud, bad faith, or improper

motive was shown.”



Shareowners

2 0

Hubbard v. Hollywood Park Realty Enterprises, Inc., 1991 WL 3151 (Del.Ch.), 17 Del. J. Corp. L. 238 (1991)

Hollywood Park Enterprises, had a bylaw provision

requiring shareholders who intended to nominate

candidates for election to the board of directors to

give the corporation notice of that intent 90 days in

advance of the annual shareholders’ meeting.

The provision was challenged by Hubbard, a

major shareholder of Hollywood Park, who had

launched a proxy fight and consent solicitation

because he wanted to remove and replace the

board of directors but was frustrated by the board’s

refusal to extend the advance-notice bylaw deadline.

Hubbard argued that circumstances had changed

after the 90-day deadline and that continued

enforcement of the bylaw provision would be

inequitable. If the bylaw provision were not waived,

the result would be that management’s slate of

candidates would run unopposed at the shareholders’

annual meeting.

The court held that although the bylaw notice

requirement was facially valid and was equitable

at the time it originally became applicable, the

board’s subsequent refusal to waive the bylaw

requirement was inequitable. Considerations of

fairness and the fundamental importance of the

shareholder franchise dictated that the shareholders

be afforded a fair opportunity to nominate an

opposing slate, thus imposing upon the board the

duty to waive the advance notice requirement of

the bylaw.

Nomad Acquisition Corp. v. Damon Corp., Del.Ch., C.A. No. 10173 (1988)

Lerman v. Diagnostic Data, Inc., 421 A.2d 906 (Del. Ch. 1980)

In Nomad, plaintiffs sought to enjoin an advance

notice bylaw provision that was adopted 10 days

after learning of plaintiffs’ hostile intentions.

The court upheld the facial validity of the provision

The Court of Chancery voided application of a

70-day advance notice bylaw, where the board

of directors amended the bylaws to schedule the

annual meeting of shareholders for the election

of directors for a date only 63 days into the future.

Finding that the advance notice requirement, taken

together with the bylaw amendment scheduling

with little discussion, suggesting that advance

notice provisions in bylaws are not per se illegal

under Delaware law.

the meeting, had a “terminal effect on the

aspirations” of the plaintiff stockholder, the court

enjoined enforcement of the 70-day advance

notice requirement because it had the effect of

removing the insurgents from the contest even if

they had been “shelf-ready.”



ShareownersLASERS v. Citrix is similar to State of Wisconsin

Investment Board v. Peerless Systems Corp.,

discussed below, in that the investor plaintiff was

allowed to challenge the adjournment of an annual

meeting when it was apparent that a management

proposal was doomed to fail, and the company

wanted more time to solicit votes. The case was

decided on a motion to stay the action because the

same parties were involved in a federal securities

action based on a negative earnings announcement

that occurred shortly after the annual meeting.

Despite the overlap, the Delaware court refused

to stay the action challenging the company’s effort

to interfere with the shareholder franchise.

Louisiana State Employees’ Retirement System v. Citrix Systems, Inc., Civ. No. 18298 (Del. Ch. Jan. 5, 2001

Parshalle v. Roy, Del. Ch., 567 A.2d 19 (1989)

Parshalle involved an election of corporate directors,

and there was a question as to how particular shares

were voted. The court held that (1) the later-dated of

two proxies submitted on behalf of same partnership

and purporting to vote the same number of shares

was properly given effect despite possibility that

internal mistake or misunderstanding among

general partners may have led to later-dated proxy,

but (2) “datagram proxies” lacked fundamental

indicia of authenticity and genuineness needed to

accord them presumption of validity.

The datagram proxies used in this case contained

no signature or other mark or characteristic that

would have verifiably linked any proxy to any

specific stockholder and there was no return call

verification procedure. To be effective as a proxy,

a document must identify the shares that are to be

voted by the agent and include some indication of

authenticity, such as the stockholder’s signature

or a facsimile of the signature. The court held that

Delaware law does not require that a proxy be in

any particular form. In reviewing the outcome of a

proxy fight or a consent contest, the law does not

inquire into the subjective intent of either the record

owner or the beneficial owner in the usual case.

A 1998 amendment to the Delaware corporation

statute codified the holding in Parshalle by allowing

electronic transmission of proxies, provided that

the transmission is set forth or submitted with

information so it can be determined that the

transmission was authorized by the stockholder.



Shareowners

2 2

In Schnell, stockholders of Chris-Craft were en-

gaged in a proxy contest against management. In

response to the dissidents’ proxy solicitation, the

Chris-Craft board amended the company’s bylaws

to accelerate the date of the annual meeting from

January 11, 1972 to December 8, 1971, over five

weeks before the originally scheduled meeting date.

In holding that a meeting date once fixed may not

be advanced to the disadvantage of insurgents in a

proxy contest, the Delaware Supreme Court found

that management had impermissibly used the cor-

porate machinery for the purpose of perpetuating

itself in office. A board of directors may not use the

corporate machinery for the purpose of obstruct-

ing the legitimate efforts of dissident stockholders

to undertake a proxy contest against management.

The court further held that that bylaw amendments

may not be undertaken inequitably even if they are

legally permissible, stating “inequitable action does

not become permissible simply because it is legally

possible.”

Schnell v. Chris Craft Industries, 285 A.2d 437 (Del. 1971)

The board of directors postponed the annual

meeting of shareholders for the reason that its

accountants were unable to have the annual audit

completed in sufficient time for the meeting. The

board contended that its action was an exercise of

sound judgment for the purpose of permitting the

stockholders to vote intelligently after having read

the corporation’s annual report. In the course of

deciding that the postponement was invalid, the

court reasoned, “In the present case, if the annual

report is not ready for distribution in time for the

April 6 meeting, the situation should be presented

to the stockholders at that meeting. They can then

decide for themselves whether they want to adjourn

the meeting until the report is available. The deci-

sion, however, is one for the stockholders to make

rather than the directors.” The court went on to say

that although the board of directors has the power

generally to amend the bylaws, “the board has no

power to change or postpone the date of the annual

meeting of stockholders.”

Penn-Texas Corp. v. Niles-Bement-Pond Co., 34 N.J.Super. 373, 378, 112 A.2d 302 (Ch.Div.1955)



ShareownersPeerless involved an annual meeting where a man-

agement proposal to increase the number of autho-

rized stock options failed to obtain shareholder ap-

proval. The chairman adjourned the meeting, and

the company spent the new few weeks soliciting

votes from European shareholders, who reportedly

had trouble voting their proxies. When the meeting

was reconvened a month later, the proposal had

enough votes to pass, though only barely.

A shareholder who opposed the additional op-

tions sued, claiming that the adjournment violated

the company’s fiduciary obligation to its share-

holders and was designed to interfere with the

shareholders’ exercise of their franchise, relying

on the Blasius line of cases discussed above. The

Delaware Chancery court agreed to apply the

principles protecting the shareholders’ right to vote

to the adjournment of meetings, holding that the

company may be liable if the primary purpose of

the adjournment was to thwart the exercise of the

shareholder franchise and if there is no compel-

ling justification for the company’s decision. (In its

order denying reargument, the court cited several

example where a compelling justification could be

shown, i.e., evidence of vote fraud, a disruption of

the proxy process, or the absence of a quorum.

Ruling on motions for summary judgment, the

court concluded that the investor had standing to

challenge the adjournment, even though the inves-

tor had neither attended the meeting nor objected

to the action, the court explaining that the proxy

solicitation system was designed to let sharehold-

ers participate without being present. On the

merits, the court found that the primary purpose

of the adjournment was, in fact, to interfere with

the franchise; the court denied summary judgment,

however, finding that it could not conclude on the

limited record that the “compelling justification”

element had been satisfied. The matter was subse-

quently settled.

State of Wisconsin Investment Board v. Peerless Systems Corp., C.A. No. 17637 (Del. Ch. Dec. 4, 2000), reargument denie d (Jan. 5, 2001)



Shareowners

2 4

In an election vote, the election judges did not

open one of the envelopes submitted because

they did not realize that the envelope in question

contained proxies. A few days later, before the

final vote was announced, the judges discovered

the envelope with the proxies. The question was

whether the disputed proxies should be recognized

as timely filed and their votes recorded and counted.

The court concluded that the disputed proxies

should be counted. The fundamental rule is that all

who are entitled to take part in a shareholders’

vote shall be treated with fairness and good faith.

That rule permits the correction of a ministerial

mistake made by election inspectors, where it can

be made without prejudice to the rights of others,

and before the final vote is announced. This case

has been interpreted to mean that the chair has

an obligation to conduct stockholders’ meetings in

a manner that is fair to the stockholders.

Young v. Jebbett, 211 N.Y.S. 61 (N.Y. Sup. Ct. 1925)

In Steinberg, the company failed to call its meeting

at the required time and when it did call the meeting

it used improper tactics to prevent plaintiff from

having sufficient time to solicit proxies. The court

found that a request for inspection of the stock-

holders lists for purposes of contacting the other

stockholders regarding voting at the stockholders’

meetings constituted a proper purpose under the

state law right to inspect the list. The court also

held that an annual meeting could be postponed

if necessary in the interests of the stockholders.

The court then issued a preliminary injunction

postponing the annual meeting because the list

was withheld and the postponement was necessary

to allow plaintiff sufficient time to communicate

with the shareholders prior to the meeting. In these

situations, the burden of persuasion must be upon

those seeking to postpone the annual meeting to

show that the postponement is in the best interests

of the stockholders.

Steinberg v. American Bantam, 76 F. Supp. 426 (W.D. Pa. 1948), appeal dismissed as moot, 173 F.2d 179 (3rd. Cir. 1949)

DisclaimerThis primer is designed to provide a general introduction to annual meetings of shareowners and is not a comprehensive discussion of all aspects of such meetings. While the Council exercised due care in preparing this primer, it does not guarantee the accuracy of the information.

A printable version of this primer is also available on the Council of Institutional Investors’ Web site at www.cii.org.

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