In the Phyrric battle over access back in 2007, the Commission declined to allow an extremely mild form of access.  No one was talking about direct access to the company's proxy statement.  Shareholders merely wanted the right to submit a bylaw that if it passed, would allow inclusion of nominees the following year.  In other words, access was a problematic process that would take two years to implement, largely eliminating any real risk that the authority would be used by short term investors.

Companies vigorously opposed this mild reform, with the consequence that a far more blunt and direct right to access is likely to be adopted, with large shareholders getting direct access and not having to go through the charade of a bylaw. 

It was, in the end, a short sighted approach.  In the course of the debate, many commentators contended that the reform was unnecessary given the growing implementation of "majority vote" requirements by public companies.  As a letter from Wachtell Lipton noted:

• Majority voting standards have also gained traction and have now been adopted by a growing number of public corporations. While we believe some of these reforms have been useful, as a general matter we believe the regulatory response to the Enron and WorldCom scandals, in hindsight, has been excessive, creating a risk aversion that has not been healthy for the operation of public companies generally. Again, in any event, the massive regulatory response that has already been implemented further undercuts the argument that yet more reforms are necessary.

Majority voting has become common but it was never an adequate substitute for access.  First of all, few directors failed to get a majority of votes.  Even if a director was defeated and did not stay in office, the board got to fill the vacancy.  In other words, defeating a director might be an outlet for shareholder frustration but did not ensure that a board was more oriented towards the interests of shareholders.  Only access can truly do that.

But majority vote provisions had an even more fundamental problem.  Even if shareholders defeat directors, the directors, in most instances, only need to submit a letter of resignation.  The board has the option of accepting or not accepting the letter.  In other words, shareholders could defeat directors, only to see their resignation refused and their position on the board retained.

The decision not to accept a letter of resignation is subject to examination under the board's state law fiduciary duties.  The failure to accept a resignation letter will violate these fiduciary duties if, for example, motivated by something other than the best interests of shareholders.  The problem, however, is that there is no serious disclosure obligations connected to the resignation process.  The board is not required to disclose its analysis or reasons.

Shareholders, therefore, must resort to their inspection rights to get whatever materials are inside the corporation.  As we have noted often on this Blog, the Delaware courts have thrown up deliberately difficult barriers to the exercise of inspection rights.  They require "credible evidence" of misconduct before an inspection will be allowed.  It is reasonable to assume that the courts will use this standard to deny shareholders access to this information.

With that in mind, we turn to the case of Axcelis Technologies.  Three directors did not receive a majority of the votes cast.  They submitted their resignation but were retained by the board.  The decision has spawned a suit to inspect records under Section 220.  Although this opinion came out awhile back, it truly deserves some attention.  We will look at this matter in greater detail during the next two posts.