Disney dresses up its window

In the wake of the recent Disney opinion by Chancellor Chandler, declining to impose liability but excoriating Disney’s “supine” board, Disney has made another governance move, as described by today’s NYT:

Under a provision adopted by the board, if shareholders withhold a majority of their votes from any director, the board member would be required to resign, submitting a letter to the governance and nominating committee. The committee would then recommend to the board whether the resignation should be accepted.

This would seem to enable the shareholders to “focus[] on board composition,” as Gordon Smith recently recommended.

Right. If the shareholders can somehow coordinate to come up with a majority of votes, then they can essentially make a recommendation to the nominating committee, which it can accept or reject, subject to the very soft scrutiny of the business judgment rule. 

As Chancellor Chandler said,  “[t]he redress for failures that arise from faithful management must come from the markets … and not from this Court.” 

I pointed out that this means the stock market, not the ballot box. And that means private equity or some equivalent device.  In other words, Carl Icahn can buy enough shares from disgruntled shareholders to give him real leverage in negotiating with the board, as he is doing with Time Warner. Governance moves like the Disney bylaw are simply windowdressing.

Comments

[Steve Bainbridge]

Hmmm. It sounds like you're giving up on the idea that hedge fund managers, which is basically what Icahn is these days, will prove effective corporate governance advocates via the ballot box, which I thought had been an area of disagreement between us. Or am I misreading you again?

[Larry Ribstein]

What matters is who is exercising the power (i.e., Icahn or Joe Investor), which the market determines, not doling out meaningless powers or exhorting diversified shareheolders out of their rational passivity. And nobody's getting anywhere by being an "advocate" for anything other than making money, as Adam Smith would say.