The nice thing about being a corporate and securities lawyer is that I'm never at a loss for new reading material. Just as I was beginning to despair about what to read after the Dodd-Frank Act, the Securities and Exchange Commission issued its adopting release on facilitating shareholder director nominations. While no A La Recherche Du Temps Perdu, the SEC's release is not exactly a light weight - it weighs in it at a respectable 451 pages. At least I'll have something to get me through the weekend.
Although I've barely dipped a toe into the murky depths of the SEC's most recent magnum opus, I've already been struck by the following statement: "The rule defers entirely to state law as to whether shareholders have the right to nominate directors . . . ." So, do shareholders in a California corporation have the right to nominate persons for election of directors?
Interestingly, the California General Corporation Law appears to be as silent on the subject as Rachel Carson's spring. Section 708(b) does mention nominations in denying the right to cumulate votes unless the candidate's name has been placed into nomination prior to voting. That statute, however, doesn't explicitly confer any specific right on shareholders to nominate candidates for election to the board. Rather, it merely establishes a precondition to the right to cumulate votes. The California Supreme Court has filled this lacuna by asserting, in what should be regarded as dicta, that at "shareholders' meetings each shareholder is entitled to offer proposals to be voted on . . . and to nominate directors and to vote on the slate of directors nominated by management. Stephenson v. Drever, 16 Cal.4th 1167, 1176 (1997).