USA Law and Practice Contributed by: Kai Liekefett, Derek Zaba, Ram Sachs and Evan Grosch, Sidley Austin
Improper Vote Count A shareholder may raise an objection to the manner in which votes were counted by the inspector of election at the annual meeting. Remedies DGCL § 225 provides a mechanism to determine the validity of any director election or other stockholder vote. If the Court of Chancery determines that the stockholder vote was not validly held, it may order that a new vote be held or award other equitable relief appropriate under the circumstances. In addition, common law bases for action may enable stockholders to challenge stockholder votes passed at a meeting for failure to comply with statute or the company’s governing documents. 2.12 Institutional Shareholder Groups Institutional investors influence a company’s actions via exercising voting rights as shareholders and via ongoing engagement. Institutional investors often hold large stakes in public companies, giving them considerable voting power at shareholder meetings. Institutional investors are thus able to communicate approval or disapproval of director performance via voting. Even in uncontested elections of directors, institutional investors may withhold votes to demon - strate dissatisfaction. Institutional investors also play influential roles in whether shareholder proposals pass – frequently, such proposals highlight ESG concerns that may be shared by institutional investors. Beyond exercising the shareholder franchise, institu- tional investors can guide companies through direct engagement and issuing broader policy documents, including voting policies. These policies can influence action by boards and management. Proxy advisors play influential roles in assisting in monitoring corporate governance practices and mak- ing influential recommendations that can impact the vote of institutional investors. While larger institutional investors may have in-house governance teams to assess corporate performance and governance, many institutions leverage proxy advisors such as ISS and Glass Lewis to guide their votes at shareholder meet- ings. These proxy advisors issue research reports and
vote recommendations explaining their positions in advance of shareholder meetings. 2.13 Holding Through a Nominee Shareholders holding shares via a nominee, such as a brokerage firm, must follow the procedures of the nominee in order to vote shares. Information related to matters to be voted at a shareholder meeting would be available via a public filing submitted by the company and thus available to holders of shares via nominees. 2.14 Written Resolutions Under Delaware law, stockholders may approve a res- olution by written consent, unless otherwise specified in the company’s certificate of incorporation. Where action by written consent is permitted, the applicable voting standard is typically the minimum number of votes to take such action at a stockholder meeting. Company by-laws may specify further procedures for stockholder action by written consent. 3. Share Issues, Share Transfers and Disclosure of Shareholders’ Interests 3.1 Share Issues Under Delaware law, existing stockholders do not have the pre-emptive right to subscribe to an addi- tional issue of shares unless such right is granted in the company’s certificate of incorporation (DGCL § 102 (b)(3)). 3.2 Share Transfers As a general matter, for public companies, there are no broadly applicable legal or regulatory restrictions on the transfer or disposal of shares. Government authorities may impose restrictions on stock transfer for certain regulated entities, such as utilities or banks. In addition, in recent years, antitrust considerations have grown across wide swaths of the economy. 3.3 Security Over Shares Shareholders are generally entitled to grant security interests over their shares.
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