Gino DiCaro

Bill would force change to corporate board governance

By Gino DiCaro, VP, Communications

Capitol Update, July 21, 2006 Share this on FacebookTweet thisEmail this to a friend

SB 1207 (Richard Alarcon, D-Sun Valley), co-sponsored by the California Public Employees Retirement System and the State Teachers Retirement System, seeks to dictate the manner in which California-based corporations hold Board of Director elections.

The bill would establish a majority vote standard (rather than plurality) for uncontested Board of Director elections and establish a rule requiring resignation within 90 days by an incumbent director not elected to his or her position using this majority vote rule.  According to the Assembly Banking & Finance Committee analysis, SB 1207 would affect approximately 23 listed corporations.

 While the author has recently amended the bill in an attempt to make it permissive, concern remains that the bill would still allow a small group of shareholders the ability to force the majority vote rule upon a corporation.

In order for a company to escape the requirement for a majority vote rule imposed by SB 1207, the articles of incorporation and bylaws would have to be changed. The concern arises between existing law and that proposed in SB 1207.  Existing law requires either a majority vote of all shareholders or approval by the Board of Directors to change bylaws and articles, but, under SB 1207, a new far lower threshold is set requiring only a majority of those shareholders voting to adopt a majority vote rule into the bylaws or articles. Once this small group of shareholders (whose interests may be harmful to the majority of all shareholders) adopts a majority vote rule, the same minority group of shareholders would be empowered to undo any uncontested director election.

SB 1207 will be considered on the Assembly Floor in August. If any CMTA company has concerns with the bill, please contact Matt Sutton.
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