Mandating Board-Shareholder Engagement?
Lisa M. Fairfax | 2013 U. Ill. L. Rev. 821
This Article not only argues that corporations must be encouraged to enhance the level of communication between shareholders and the board, but also maintains that the benefits of increased engagement are significant enough that we should consider developing standards for incentivizing, if not mandating, more robust board-shareholder engagement for corporations that fail to respond to such encouragement. In the last several years, shareholders not only have gained increased authority over corporate elections and governance matters, but also have demonstrated a willingness to use that authority to challenge, and even reject, management policies and practices. Shareholders also have begun to demand increased communication with the corporation in general, and the board in particular. This Article argues that corporations should be strongly encouraged, if not compelled, to meet that demand. While acknowledging the potential pitfalls associated with increased board-shareholder engagement, this Article further argues that many of those pitfalls have been overstated, or can be minimized. Moreover, in light of shareholders’ enhanced influence over corporate affairs, the costs associated with enhanced engagement may be outweighed by the benefits. While it is not a panacea, increased board-shareholder engagement has the potential to dramatically increase the corporation’s ability to promote understanding of its policies and programs, and otherwise avoid the negative repercussions of shareholder activism. Thus, this Article endorses proposals that encourage corporations to increase board-shareholder dialogue with two caveats. First, given the menu of communicative options and the various judgment calls that must be made when im-plementing particular options, deference should be given to corporations and the board with respect to which option or options to adopt. Second, the benefits of board-shareholder engagement are important enough that we should consider proposals that would more effectively incentivize and even mandate such engagement for those corporations that refuse to answer the calls to increase their dialogue with shareholders.