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Unformatted text preview: 307 C HAPTER 39 C ORPORATIONS —D IRECTORS , O FFICERS , AND S HAREHOLDERS A NSWER TO C RITICAL A NALYSIS Q UESTION IN THE F EATURE C ONTEMPORARY L EGAL D EBATES —W HERE D O Y OU S TAND ? (P AGE 809) Several dozen managers and directors of foreign-based pension plans and insurance companies—which invest in U.S. securities—wrote a joint letter to the head of the SEC. In that letter, they stated that “experience in the United Kingdom, Australia, and the Netherlands has shown that boards whose members may be removed by shareholders are much more sensitive to shareholder opinion and are much more likely to engage in a meaningful dialogue with the institutions that hold their shares.” How important is such a dialogue? What might be some of the topics of such a dialogue? The importance of such a dialogue depends on the overarching goals of those who would participate. Conflicting goals could inhibit a firm, but a singularity of purpose among those concerned could energize corporate actions. The subjects that might be discussed between these parties would likely be limited only by the imaginations of those who own shares. They might focus on internal corporate concerns—the level of executive compensation or union recognition and employee pay, for instance—but they could also expand to a full range of ethical, social, and public policy issues—a company’s role in global warming, for example. A NSWERS TO Q UESTIONS AT THE E NDS OF THE C ASES C ASE 39.1—Q UESTIONS (P AGE 798) 1A. What does this case indicate about the importance of corporate articles and bylaws with respect to corporate governance? The Relational case illustrates the huge significance to corporate governance ascribed to corporate articles and bylaws. The court pointed out that “the articles of incorporation of a corporation ... are a contract between the corporation and its shareholders and among the shareholders themselves” and in its holding gave complete effect to, and applied, the provisions of Sovereign’s articles to direct the outcome of the case. 2A. If you could dictate a corporation’s rule with respect to the removal of its directors, what would you prescribe? Why? The court in the Relational case understood 308 UNIT EIGHT: BUSINESS ORGANIZATIONS that there are “important public policies which seek to balance the interests of protecting corporate entities from the destabilizing effects of hostile takeovers and abrupt changes in management and the interests of the right of shareholders to remove directors deemed unfit to continue in the management of the corporation or who persist in a policy that they, but not the shareholders, prefer.” The court ruled “in favor of shareholder autonomy, giving shareholders the right to remove all or some directors without cause, as long as a majority of qualified shareholders so vote, and I so hold.” C ASE 39.2—(P AGE 804) W HAT I F THE F ACTS W ERE D IFFERENT ?...
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- Spring '09
- Law, Corporation, Shareholders