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Hirst, Scott

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Hirst, Scott

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Author's Publications: search.filters.isAuthorOfPublication.cc7a7096-1172-42a1-89b2-b3d21eaaeb00

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    Toward Board Declassification in 100 S&P 500 and Fortune 500 Companies: Report of the SRP for the 2012 and 2013 Proxy Seasons
    (Harvard Law School Forum on Corporate Governance and Financial Regulation, 2014) Bebchuk, Lucian; Hirst, Scott; Rhee, June
    This report provides an overview and analysis of the work that the Shareholder Rights Project (SRP) undertook on behalf of a number of institutional investors during 2012 and 2013, the SRP’s first two years of operations. During 2012 and 2013, the SRP worked on behalf of eight SRP-represented investors on board declassification proposals submitted for a vote at the 2012 and/or 2013 annual meetings of 122 S&P 500 and Fortune 500 companies, and this work has produced substantial results: 100 Negotiated Outcomes: Negotiated outcomes involving a commitment to board declassification were reached with 100 S&P 500 and Fortune 500 companies, about three-quarters of the companies receiving proposals in 2012 and/or 2013. 58 Successful Precatory Proposals: During 2012 and 2013, declassification proposals brought by SRP-represented investors received majority support at 58 annual meetings of 53 S&P 500 and Fortune 500 companies (all but three of the annual meetings in which such proposals went to a vote), with average support of about 80% of votes cast. 81 Board declassifications: A total of 81 S&P 500 and Fortune 500 companies already declassified their boards during 2012 and 2013 as a result of the work of the SRP and SRP-represented investors. These 81 companies, which have an aggregate market capitalization exceeding one trillion dollars (as of Dec, 31, 2013), represent about 65% of the companies with which engagements took place and about 60% of the S&P 500 companies that had classified boards as of the beginning of 2012. Expected Impact by End of 2014: The work of the SRP and SRP-represented investors is expected to produce a significant number of additional board declassifications during 2014 as a result of (i) management declassification proposals that will go to a vote pursuant to 2012 and 2013 agreements, (ii) companies agreeing to follow the preferences of shareholders expressed in 58 successful precatory declassification proposals, and (iii) ongoing engagement by the SRP and SRP-represented investors. We estimate that, by the end of 2014, this work will have contributed to movements towards board declassification by about 100 S&P 500 and Fortune 500 companies; this large-scale change can be expected to increase board accountability and thereby to enhance shareholder value and company performance in the affected companies. Beyond Board Declassification: The SRP’s 2012 and 2013 work also facilitated a substantial increase in successful engagement by public pension funds, and in their ability to obtain governance changes favored by shareholders. The proposals that the SRP worked in 2012 and 2013 on represented over 50% of the shareholder proposals by public pension funds that received majority support in 2012 and 2013, and over 20% of all precatory shareholder proposals (by all proponents) that received majority support in 2012 and 2013. The Shareholder Rights Project (SRP) is a clinical program operating at Harvard Law School and directed by Professor Lucian Bebchuk. The SRP works on behalf of public pension funds and charitable organizations seeking to improve corporate governance at publicly traded companies, as well as on research and policy projects related to corporate governance. Any views expressed and positions taken by the SRP and its representatives should be attributed solely to the SRP and not to Harvard Law School or Harvard University.
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    Publication
    Private Ordering and the Proxy Access Debate
    (American Bar Association, 2010) Bebchuk, Lucian; Hirst, Scott
    This Article examines two “meta” issues raised by opponents of the SEC’s proposal to provide shareholders with rights to place director candidates on the company’s proxy materials. First, opponents argue that, even assuming proxy access is desirable in many circumstances, the existing no-access default should be retained and the adoption of proxy access arrangements should be left to opting out of this default on a company-by-company basis. This Article, however, identifies strong reasons against retaining no-access as the default. There is substantial empirical evidence indicating that director insulation from removal is associated with lower firm value and worse performance. Furthermore, when opting out from a default arrangement serves shareholder interests, a switch is more likely to occur when it is favored by the board than when disfavored by the board. We analyze the impediments to shareholders’ obtaining opt-outs that they favor but the board does not, and we present evidence indicating that such impediments are substantial. The asymmetry in the reversibility of defaults highlighted in this Article should play an important role in default selection. Second, opponents of the SEC’s proposed reforms argue that, if the SEC adopts a proxy access regime, shareholders should be free to opt out of this regime. We point out the tensions between advocating such opting out and the past positions of many of the opponents, as well as tensions between opting out and the general approach of the proxy rules. Nonetheless, we support allowing shareholders to opt out of a federal proxy access regime, provided that the opt-out process includes necessary safeguards. Opting out should require majority approval by shareholders in a vote where the benefits to shareholders of proxy access are adequately disclosed, and shareholders should be able to reverse past opt-out decisions by a majority vote at any time. The implications of our analysis extend beyond proxy access to the choice of default rules for corporate elections, and to the ways in which shareholders should be able to opt out of election defaults. In particular, the current plurality voting default should be replaced with a majority voting default, and existing impediments to the ability of shareholders to opt out of arrangements that make it difficult to replace directors should be re-examined.