Shareholders' Ability to Act by Written Consent

Discussion

Currently, 350 of the S&P 500 companies allow shareholder action by written consent, while the remaining 150 either do not allow such action or have some sort of restriction on the requirement for the consent solicitation. Consent solicitations can be advantageous to both shareholders and management in that the process does not involve the expense of holding a physical meeting, and it is easier for shareholders who can simply respond to the proposal by mail. A consent solicitation is similar to a proxy solicitation: consents are mailed to shareholders for their vote and signature and delivered to management. The only procedural difference is that the consent process ends with delivery of the consents. If enough consents are returned, the subject of the consent is deemed ratified. In contrast, a proxy solicitation must end with a meeting because proxy cards merely authorize the indicated "proxy" to cast a vote at a shareholder meeting. A signed consent card is itself the final vote and, as such, does not require a vote by proxy at a shareholder meeting.

Many states require a unanimous shareholder vote for the subject of a consent solicitation to become effective. In other states, notably Delaware and California, consent subjects are considered ratified if the consent vote matches the ratification vote required at a shareholder meeting. For example, if simple majority approval is required to pass resolutions at a meeting, then a simple majority is also required to approve action by written consent.

Some argue that since shareholders do not have to provide advance notice to the SEC of their intention to take action by written consent, a consent solicitation aimed at replacing a board or other takeover-related measures can be inherently coercive because it does not allow shareholders enough time to properly evaluate their options. However, with their professional staff and experience with many change-of-control offers during the 1980s, institutional investors are more than able to evaluate a consent solicitation in the allotted time frame.

Limitations on written consent are clearly contrary to shareholder interests. In terms of day-to-day governance, shareholders may lose an important right-the ability to remove directors or initiate a shareholder resolution without having to wait for the next scheduled meeting-if they are unable to act by written consent. Beneficial tender offers also may be precluded because of a bidder's inability to take action by written consent.