Quieting the shareholders' voice: Empirical evidence of pervasive bundling in proxy solicitations

James D. Cox, Fabrizio Ferri, Colleen Honigsberg, Randall S. Thomas

Research output: Contribution to journalReview article

1 Citation (Scopus)

Abstract

The integrity of shareholder voting is critical to the legitimacy of corporate law. One threat to this process is proxy "bundling," or the joinder of more than one separate item into a single proxy proposal. Bundling deprives shareholders of the right to convey their views on each separate matter being put to a vote and forces them to either reject the entire proposal or approve items they might not otherwise want implemented. In this Paper, we provide the first comprehensive evaluation of the anti-bundling rules adopted by the Securities and Exchange Commission ("SEC") in 1992. While we find that the courts have carefully developed a framework for the proper scope and application of the rules, the SEC and proxy advisory firms have been less vigilant in defending this instrumental shareholder right. In particular, we note that the most recent SEC interpretive guidance has undercut the effectiveness of the existing rules, and that, surprisingly, proxy advisory firms do not have well-defined heuristics to discourage bundling. Building on the theoretical framework, this Article provides the first large-scale empirical study of bundling of management proposals. We develop four possible definitions of impermissible bundling and, utilizing a data set of over 1,300 management proposals, show that the frequency of bundling in our sample ranges from 6.2 percent to 28.8 percent (depending on which of the four bundling definitions is used). It is apparent that bundling occurs far more frequently than indicated by prior studies. We further examine our data to report the items that are most frequently bundled and to analyze the proxy advisors' recommendations and the voting patterns associated with bundled proposals. This Article concludes with important implications for the SEC, proxy advisors, and institutional investors as to how each party can more effectively deter impermissible bundling and thus better protect the shareholder franchise.

Original languageEnglish (US)
Pages (from-to)1179-1242
Number of pages64
JournalSouthern California Law Review
Volume89
Issue number6
StatePublished - Sep 1 2016
Externally publishedYes

Fingerprint

shareholder
evidence
voting
firm
corporate law
management
investor
integrity
heuristics
voter
legitimacy
threat
evaluation

ASJC Scopus subject areas

  • Law

Cite this

Quieting the shareholders' voice : Empirical evidence of pervasive bundling in proxy solicitations. / Cox, James D.; Ferri, Fabrizio; Honigsberg, Colleen; Thomas, Randall S.

In: Southern California Law Review, Vol. 89, No. 6, 01.09.2016, p. 1179-1242.

Research output: Contribution to journalReview article

Cox, James D. ; Ferri, Fabrizio ; Honigsberg, Colleen ; Thomas, Randall S. / Quieting the shareholders' voice : Empirical evidence of pervasive bundling in proxy solicitations. In: Southern California Law Review. 2016 ; Vol. 89, No. 6. pp. 1179-1242.
@article{9681d073552644a9a82c8c27daa50e60,
title = "Quieting the shareholders' voice: Empirical evidence of pervasive bundling in proxy solicitations",
abstract = "The integrity of shareholder voting is critical to the legitimacy of corporate law. One threat to this process is proxy {"}bundling,{"} or the joinder of more than one separate item into a single proxy proposal. Bundling deprives shareholders of the right to convey their views on each separate matter being put to a vote and forces them to either reject the entire proposal or approve items they might not otherwise want implemented. In this Paper, we provide the first comprehensive evaluation of the anti-bundling rules adopted by the Securities and Exchange Commission ({"}SEC{"}) in 1992. While we find that the courts have carefully developed a framework for the proper scope and application of the rules, the SEC and proxy advisory firms have been less vigilant in defending this instrumental shareholder right. In particular, we note that the most recent SEC interpretive guidance has undercut the effectiveness of the existing rules, and that, surprisingly, proxy advisory firms do not have well-defined heuristics to discourage bundling. Building on the theoretical framework, this Article provides the first large-scale empirical study of bundling of management proposals. We develop four possible definitions of impermissible bundling and, utilizing a data set of over 1,300 management proposals, show that the frequency of bundling in our sample ranges from 6.2 percent to 28.8 percent (depending on which of the four bundling definitions is used). It is apparent that bundling occurs far more frequently than indicated by prior studies. We further examine our data to report the items that are most frequently bundled and to analyze the proxy advisors' recommendations and the voting patterns associated with bundled proposals. This Article concludes with important implications for the SEC, proxy advisors, and institutional investors as to how each party can more effectively deter impermissible bundling and thus better protect the shareholder franchise.",
author = "Cox, {James D.} and Fabrizio Ferri and Colleen Honigsberg and Thomas, {Randall S.}",
year = "2016",
month = "9",
day = "1",
language = "English (US)",
volume = "89",
pages = "1179--1242",
journal = "Southern California Law Review",
issn = "0038-3910",
publisher = "University of Southern California",
number = "6",

}

TY - JOUR

T1 - Quieting the shareholders' voice

T2 - Empirical evidence of pervasive bundling in proxy solicitations

AU - Cox, James D.

AU - Ferri, Fabrizio

AU - Honigsberg, Colleen

AU - Thomas, Randall S.

PY - 2016/9/1

Y1 - 2016/9/1

N2 - The integrity of shareholder voting is critical to the legitimacy of corporate law. One threat to this process is proxy "bundling," or the joinder of more than one separate item into a single proxy proposal. Bundling deprives shareholders of the right to convey their views on each separate matter being put to a vote and forces them to either reject the entire proposal or approve items they might not otherwise want implemented. In this Paper, we provide the first comprehensive evaluation of the anti-bundling rules adopted by the Securities and Exchange Commission ("SEC") in 1992. While we find that the courts have carefully developed a framework for the proper scope and application of the rules, the SEC and proxy advisory firms have been less vigilant in defending this instrumental shareholder right. In particular, we note that the most recent SEC interpretive guidance has undercut the effectiveness of the existing rules, and that, surprisingly, proxy advisory firms do not have well-defined heuristics to discourage bundling. Building on the theoretical framework, this Article provides the first large-scale empirical study of bundling of management proposals. We develop four possible definitions of impermissible bundling and, utilizing a data set of over 1,300 management proposals, show that the frequency of bundling in our sample ranges from 6.2 percent to 28.8 percent (depending on which of the four bundling definitions is used). It is apparent that bundling occurs far more frequently than indicated by prior studies. We further examine our data to report the items that are most frequently bundled and to analyze the proxy advisors' recommendations and the voting patterns associated with bundled proposals. This Article concludes with important implications for the SEC, proxy advisors, and institutional investors as to how each party can more effectively deter impermissible bundling and thus better protect the shareholder franchise.

AB - The integrity of shareholder voting is critical to the legitimacy of corporate law. One threat to this process is proxy "bundling," or the joinder of more than one separate item into a single proxy proposal. Bundling deprives shareholders of the right to convey their views on each separate matter being put to a vote and forces them to either reject the entire proposal or approve items they might not otherwise want implemented. In this Paper, we provide the first comprehensive evaluation of the anti-bundling rules adopted by the Securities and Exchange Commission ("SEC") in 1992. While we find that the courts have carefully developed a framework for the proper scope and application of the rules, the SEC and proxy advisory firms have been less vigilant in defending this instrumental shareholder right. In particular, we note that the most recent SEC interpretive guidance has undercut the effectiveness of the existing rules, and that, surprisingly, proxy advisory firms do not have well-defined heuristics to discourage bundling. Building on the theoretical framework, this Article provides the first large-scale empirical study of bundling of management proposals. We develop four possible definitions of impermissible bundling and, utilizing a data set of over 1,300 management proposals, show that the frequency of bundling in our sample ranges from 6.2 percent to 28.8 percent (depending on which of the four bundling definitions is used). It is apparent that bundling occurs far more frequently than indicated by prior studies. We further examine our data to report the items that are most frequently bundled and to analyze the proxy advisors' recommendations and the voting patterns associated with bundled proposals. This Article concludes with important implications for the SEC, proxy advisors, and institutional investors as to how each party can more effectively deter impermissible bundling and thus better protect the shareholder franchise.

UR - http://www.scopus.com/inward/record.url?scp=84994318623&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84994318623&partnerID=8YFLogxK

M3 - Review article

AN - SCOPUS:84994318623

VL - 89

SP - 1179

EP - 1242

JO - Southern California Law Review

JF - Southern California Law Review

SN - 0038-3910

IS - 6

ER -