In Monday's post, I quoted Justice Antonin Scalia and Bryan Garner quoting Jeremy Bentham. Although Bentham studied, wrote about and criticized the law, he did not practice it. He is most famously known for his association with the doctrine of utilitarianism. As it turns out, his mortal remains illustrate an important corporate governance principle - abstention.
Jeremy Bentham died on June 6, 1832. After his death, an "auto-icon" was created using his skeleton, hair, clothes and a wax head. The auto-icon was placed in a wooden box that is on display at the end of the South Cloisters of the University College London. On the centenial and sesquicentennial of the UCL, the auto-icon was taken to the meetings of the College Council. The minutes of these meetings are said to reflect Mr. Bentham's attendance as "present, but not voting". In other words, Bentham abstained.
As I've written before, an abstention is not the same as its more fashionable cousin, the "withhold vote". I find the term "withhold vote" to be profoundly misleading because a "withhold vote" is not a vote but the withholding of authority from a proxy to vote. A shareholder may withhold authority to vote entirely by not executing a proxy or she may confer authority on a proxy to vote on some, but not all matters brought before a meeting. Whether a proxy holding limited authority counts toward a quorum depends on state law. In contrast, an abstention does not necessarily involve a proxy. A shareholder present at a meeting may simply choose not to vote on one or more matters. The shareholder is counted for quorum purposes and her abstention may or may not affect the outcome depending upon the particular voting rule applied.
For example, an abstention will have the effect of a "no" vote if "approval by the outstanding shares" (Cal. Corp. Code § 152) is required. If, on the other hand, "approval by shareholders" (Cal. Corp. Code § 153) is required, then an abstention may have an impact. Approval by (or of) the shareholders requires the affirmative vote of a majority of shares represented and voting at a duly held meeting at which a quorum is present. The statute adds an extra requirement, however, that the number of affirmative votes cast must constitute at least a majority of the required quorum.
If, for example, a California corporation has 100 shares issued and outstanding, the required quorum (unless otherwise provided in the articles) is 51 shares. If 51 shares were present at a meeting and 25 shares were voted for, 24 shares were voted against, and 2 shares abstained, the approval of the shareholders has not been obtained even though a quorum was present and more votes were cast for than against the proposal. The reason is that the for votes do not constitute at lease a majority of the required quorum.
For more on Jeremy Bentham and a photograph of the auto-icon, see The Bentham Project.
What's In a Name? The New Department of Business Oversight
Juliet Capulet didn't put a lot of stake in names and was by all accounts eager to jettison Capulet for Montague. Soon, the Department of Corporation and the Department of Financial Institutions will have a new name - the Department of Business Oversight. If you're interested in what all this means, please read the article that I recently co-wrote with Jill Kovar at Aldrich, Bonnefin & Moore, PLC. You can find it in Issue No. 3 of the Business Law News, which is available free to members of the Business Law Section of the California State Bar.
Remembering Isaiah
Today, is the anniversary of the death of U.S. Supreme Court Justice Louis D. Brandeis. Although Justice Brandeis hasn't been on the bench in more than seven decades, his legacy is enormous and continuing. In the presidential debates earlier this week, I noted that Governor Romney echoed Justice Brandeis by referring to the states as laboratories:
It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.
New State Ice Co. V. Liebman, 285 U.S. 262, 311 (1932).
