Shareholders' Ability to Call Special Meetings

Discussion

Most state corporation statutes allow shareholders to call a special meeting when they want to take action on certain matters that arise between regularly scheduled annual meetings. Sometimes this right applies only if a shareholder, or group of shareholders, own a specified percentage of the outstanding shares. (Ten percent is a common requirement.) The percentage of shareholder votes required to force the company to call the meeting depends on the state statute, as does the company's ability to limit or deny altogether shareholders' right to call a special meeting. According to the ISS database, 129 of the S&P 500 companies either do not provide shareholders with the right to call special meetings, or place some form of supermajority voting restriction on that right. The database also indicates that 371 companies allow shareholders the right to call special meetings.[1]

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 at a special meeting of their calling. Shareholders could also be powerless to respond to a beneficial offer if the bidder cannot call a special meeting. The inability to call a special meeting and the resulting insulation of management could result in corporate performance and shareholder returns suffering.

The most common management proposals regarding special meetings request that shareholders approve higher vote requirements in order to call special meetings or propose the complete prohibition of the right to call meetings. The same proposals often contain supermajority voting requirements in order to amend the same restrictions, thus locking in the higher vote requirement. Once approved, these restrictions severely constrain the ability of shareholders to act independently.

In addition to management proposals to restrict shareholder rights, annual meeting proxies sometimes contain shareholder proposals to restore or to expand shareholder rights to call special meetings. The latter should be supported.