In re Massy: The Myth of Shareholder Say in the Election of Directors (Part 5)

The opinion apparently concludes that, unhappy with management, shareholders should have avoided a derivative action and simply voted out the offending directors.  As the court noted:  "The primary protection for stockholders against incompetent management is selecting new directors." 

But of course this is largely a mythical power.  Shareholders have little actual ability to remove directors from office.  The plurality system of voting dictates that management's slate will invariably be elected, even if shareholders have considerable concern over the board's performance.  Indeed, the fact that shareholders can withhold their vote (the equivalent of a no vote) is only because it is a requirement of federal, not state law. 

And while majority vote provisions have become popular, they do not give shareholders any meaningful say in board membership.  In Delaware, they result in a letter of resignation that give the board, not shareholders, the authority to decide the membership issue.  Efforts to increase shareholder authority in this area through access to the proxy statement has been vigorously opposed by the state of Delaware.

In other words, the authority doesn't exist yet it is trotted out as an appropriate remedy for shareholders.  It ought to be an appropriate remedy but in Delaware it is not. 

Primary materials in this case can be found at the DU Corporate Governance web site.