Carl Icahn, billionaire financier and investor has launched the United Shareholders of America whose aim is to push back against board entrenchment and make it easier for shareholders to promote change. You may join me in this cause by signing up at

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Absurdity of Corporate Board Elections

Posted by Carl Icahn June 16, 2008 : 8:45 PM

This country's corporate democracy – the primary mechanism of which is the election of a company's board of directors – is ineffectual. Every year, a company will circulate a proxy statement to its shareholders for their vote on a slate of board nominees, but those nominees are nominated by the board, and they nominate themselves or others that they deem to be "qualified."

It is possible for a shareholder to nominate directors, but the company does not have to include these nominees in the company's proxy statement. In an attempt to elect nominees to the board in a proxy fight a shareholder is forced to comply with arcane rules for prior notification and to prepare and circulate his or her own proxy statement at great expense. A proxy fight can cost millions of dollars out of the shareholders pocket.

Faced with a contested election for the board, management will spend the company's money (the assets of the shareholders) fighting to reelect themselves and their handed picked nominees. To add insult to injury, it's likely that the company has a staggered board In this case, even if the shareholder wins seats, the representation will not be the majority required to enforce action thus necessitating another proxy fight the following year. Occasionally newly elected directors, even if a minority of the board, are able to sway the incumbents. However, this is often very difficult to achieve – trust me, I've been there.

The process is akin to the President of the United States anointing himself as his party's nominee for re-election and then accessing unlimited public funds to run the election campaign. He then runs against candidates that must finance their campaigns from their personal assets. The current corporate election process of our public companies becomes more unconscionable when one considers how difficult it is to remove a director that is not satisfactorily performing his or her duties. But the removal process is a post for another day.

In the last several years, the Securities and Exchange Commission has paid lip service toward improving the process, but no real progress has been achieved.

American Federation of State, County & Municipal Employees, Employees Pension Plan v. American International Group, Inc., determined that, based on a prior SEC rule, a company should be required, in specific circumstances, to include shareholder nominees in the company's proxy materials. An October 2007 SEC proposal questioned whether the rule of that case should be permanently included in the SEC requirements for proxy statements of public companies. Unfortunately the decision issued by the SEC did not adopt the changes.

This was not the first time the SEC has addressed this issue. In April of 2003, the SEC piloted a study of "current proxy regulations … to develop possible changes ... [to] improve corporate democracy"; including "possible changes ... regarding procedures for the election of corporate directors. Again, the result was to continue to deny shareholders the right to include their nominees in the proxy statements of the companies they own. Notwithstanding the actions of the SEC, attention continues to focus on shareholder access to corporate proxy material for shareholder nominees and other proposals.

Recently institutional investors have sanctioned so called "majority voting" proposals and they have been adopted at many companies. These proposals take different forms but they are generally designed to deny board membership to directors that fail to receive a majority vote of shareholders, thus making it possible to target board members through "withhold the vote" campaigns. While majority voting proposals are helpful, they do not remedy the absence of legitimate shareholder access to proxy materials and proper recognition of the role of shareholders as the owners of our public companies

The fact that we shareholders, the owners of public corporations, are legally prohibited from including in the company proxy materials nominees for the board of directors of OUR company but directors of the company (whose compensation is paid from corporate assets) are permitted to do so is unfathomable. To then allow them to spend our corporate assets in the support of their election to the board is such a ludicrous concept that its very utterance proves its impropriety. To allow entrenched corporate interest to sustain this anti-shareholder regime is outrageous. The time for change is long overdue.