Jackson Pollock Convergence 1952 Module VI Corporate Governance

Jackson Pollock, “Convergence” (1952)

Module VI – Corporate Governance Chapter 15 Shareholder Information Rights • Inspection rights Bar exam Corporate practice Law profession Citizen of world Corporations: A Contemporary Approach – Procedure • Qualified shareholder • Expedited court review – Proper purpose ~ SWM – Proper shareholder • State law – Notice – Duty of disclosure • Federal law – Proxy regulation – Proxy antifraud rule • Private cause of action • Elements: materiality, culpability, causation • Remedies (rescissionary damages) Chapter 15 Shareholder Information Rights Slide 2 of 34

Voice Vote Inspection rights Sue Corporations: A Contemporary Approach Sell Chapter 15 Shareholder Information Rights Slide 3 of 34

Del GCL § 220 Inspection of books and records. (a) As used in this section: (2) "Stockholder" means a holder of record of stock in a stock corporation, or a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person. … (b) Any stockholder [in person or through lawyer/agent] … shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from … corporation's stock ledger, a list of its stockholders, and its other books and records. … A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. * * * (c) Where the stockholder seeks to inspect the corporation's … list of stockholders and establishes that such stockholder is a stockholder and has complied with this section …, the burden of proof shall be upon the corporation to establish that the inspection such stockholder seeks is for an improper purpose. Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 4 of 34

Search for “proper purpose” … Antiwar activist Shareholder activist Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 5 of 34

State ex rel Pillsbury v. Honeywell Inc. (Minn 1971) “The power to inspect is the power to destroy” “Pillsbury had utterly no interest in Honeywell before he learned about its production of fragmentation bombs” “We do not mean to imply that a shareholder with a bona fide investment intent could not bring this suit” Reframe purpose? Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Anti-personnel fragmentation bombs Slide 6 of 34

Questions unanswered: • Can a shareholder have a purpose other than SWM? • Would the result have been different if Mr. Pillsbury alleged he was trying to save corporate image? Potential lawsuits? • What result if Pillsbury seeking information on APFB, rather than shareholder list? Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 7 of 34

Saito v. Mc. Kesson HBOC, Inc. (Del 2002) Before: Mc. Kesson After: Public Shareholders Plaintiffs (Saito) Corporations: A Contemporary Approach merger HBO Mc. Kesson HBOC HBO Chapter 15 Shareholder Information Rights Slide 8 of 34

Saito v. Mc. Kesson HBOC, Inc. (Del 2002) A stockholder who demands inspection for a proper purpose should be given access to all of the documents in the corporation’s possession, custody or control, that are necessary to satisfy that proper purpose. Thus, where a § 220 claim is based on alleged corporate wrongdoing, and assuming the allegation is meritorious, the stockholder should be given enough information to effectively address the problem (1) Documents related to actions before purchase of stock: OK, Sh not limited to information that could be used in derivative suit (Sh talks to board, makes proposal, anyway possible “continuing wrong”) (2) Documents from third-parties: OK, so long as “in possession” of corporation and related to purpose to investigate possible wrongdoing (3) Documents of wholly-owned subsidiary: OK, but only if given to corporation [statute revised: if parent “controls” subsidiary, unless agreement w/ sub of sub’s SOI] Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 9 of 34

Further questions: • Is “books and records” inspection like FOIA? like Rule 34 document request? • When can shareholder seek “books and records” about a consummated merger? Are proper purposes mentioned by court all about SWM? • What third-party documents can be sought? Need parties’ permission? Seek directly from the third parties? • When can shareholder of parent corporation obtain documents about subsidiary? What if confidential? • Why not just leave Saito to discovery in the litigation he brought challenging the directorial lapses in the merger? Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 10 of 34

Who is “stockholder”? “Street name” ownership Financially “encumbered” shares Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 11 of 34

Del GCL § 220 Inspection of books and records. (a) As used in this section: (2) "Stockholder" means a holder of record of stock in a stock corporation, or a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person. … (b) Any stockholder … shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from … corporation's stock ledger, a list of its stockholders, and its other books and records. … A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. *** (c) Where the stockholder seeks to inspect the corporation's … list of stockholders and establishes that such stockholder is a stockholder and has complied with this section …, the burden of proof shall be upon the corporation to establish that the inspection such stockholder seeks is for an improper purpose. Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 12 of 34

Shareholders • NOBO Shareholders • Non-NOBO Broker-Dealer “NOBO list” Depositary Trust Co. (CEDE & Co) “CEDE breakdown” Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights “Record list” Slide 13 of 34

Deephaven Risk Arb v. United. Global. Com (VC Parsons, Del Ch 2004) “Deephaven was net short 4. 6 MM shares. ” “A stockholder is required only to provide documentary evidence of beneficial ownership. ” Shareholders buy (long) Deephaven “To give effect to [company’s argument that Deephaven owed 8. 6 MM shares to others] would force courts to determine shareholder’s position net of stock, options, derivatives. ” Corporations: A Contemporary Approach sell (short) Chapter 15 Shareholder Information Rights lend Brokers United. Global. Com Slide 14 of 34

Different under the MBCA … Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 15 of 34

NC Bus Corp Act § 55 -16 -02 Inspection of records by shareholders. (b) A qualified shareholder of a corporation is entitled to inspect and copy. . . any of the following records of the corporation if the shareholder meets the requirements of subsection (c). . . (1) Records of any final action … by the board of directors … (2) Accounting records (3) The record of shareholders (c) A qualified shareholder may inspect and copy the records described in subsection (b) only if: (1) His demand is made in good faith and for a proper purpose; (2) He describes with reasonable particularity his purpose and the records he desires to inspect; and (3) The records are directly connected with his purpose (g) For purposes of this section a "qualified shareholder" of a corporation is a person who shall have been a shareholder in the corporation for at least six months immediately preceding his demand or who shall be the holder of at least five percent (5%) of the corporation's outstanding shares of any class. Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 16 of 34

Pop quiz Inspection rights Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 17 of 34

1. Del. shareholders have a right to obtain from the corporation a list of shareholders if … a. The corporation maintains such a list b. The shareholder has a proper purpose c. The Sh owns more than 1% 4. Del. shareholders can obtain thirdparty documents: a. Only with permission of third party b. If corporation has control of document c. Even if the document has attorney -client material 2. Del. shareholders have a right to inspect corporate documents: a. If specified in the articles b. If the shareholder has a proper purpose c. If Sh owns more than 1% 5. Under the MBCA, shareholders seeking inspection: a. Have “holding period” and “quantity” requirements b. Have access to “books and records” as in Delaware c. Need not show a purpose 3. A “proper purpose” is one related to the shareholder’s interest in … a. a voting insurgency to install CSR board b. deciding whether to sell c. bringing a derivative suit 6. Beneficial owners are a. Investors who own shares on behalf of another b. Investors whose shares are owned by another c. Trusts and estates Answers: 1 -b / 2 -b / 3 -abc / 4 -b / 5 -a / 6 -b Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 18 of 59

Proxy regulation State law (notice) Federal law (“proxy solicitation”) Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 19 of 34

March 1, 2014 Dear GE shareholder: Please sign this proxy card for the upcoming shareholders' meeting at 9: 00 am on April 23, 2014 in Chicago, Illinois. * * * I hereby appoint Jeffrey Immelt as my proxy, at the upcoming 2014 annual meeting, to vote in his discretion all my GE shares as if I were at the meeting. Is this legal? • State law? • Federal law? ___________ Signature Date Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 20 of 34

MBCA § 7. 22 Proxies. (a) A shareholder may vote his shares in person or by proxy. (b) A shareholder or his agent or attorney-in-fact may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, or by an electronic transmission. An electronic transmission must contain or be accompanied by information from which one can determine that the shareholder, the shareholder's agent, or the shareholder's attorney-in-fact authorized the transmission. (c) An appointment of a proxy is effective when a signed appointment form or an electronic transmission of the appointment is received by the inspector of election or the officer or agent of the corporation authorized to tabulate votes. An appointment is valid for 11 months unless a longer period is expressly provided in the appointment form. Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 21 of 34

MBCA § 7. 05 Notice of Meeting. (a) A corporation shall notify shareholders of the date, time, and place of each annual and special shareholders' meeting no fewer than 10 nor more than 60 days before the meeting date. Unless this Act or the articles of incorporation require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting. Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 22 of 34

Federal regulation of PHC voting • “Public company” – Securities (debt or equity) listed on stock exchange – Securities (equity) – 500 holders + $10 million year-end assets – Deregistration: delisting or fall below 300 shareholders • “Proxy solicitation” – (1) request for proxy, (2) request against, (3) “reasonably calculated” – Second Circuit: part of continuous plan intended to end in solicitation • Federal proxy regulation – Form of proxy – not open-ended • Each matter: Yes-No-Abstain • Directors: For/Withhold (plurality voting) – Proxy statement – information on matters to be voted on – Annual report to Shs – if directors to be elected Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 23 of 34

On Mar 15, 2014, Vanguard Brokerage Services, Inc sent one of its customers the following email: Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting 2014 GENERAL ELECTRIC COMPANY Annual Meeting of Stockholders MEETING DATE: April 23, 2014 For Holders as of: February 24, 2014 CUSIP NUMBER: 369604103 ACCOUNT NUMBER: #####448 CONTROL NUMBER: 106469577113 You can enter your voting instructions and view the shareholder material at the following Internet site. http: //www. proxyvote. com/0106469577113 [GO TO SITE] The relevant supporting documentations can also be found at the following Internet site(s): Proxy Statement - http: //www. ge. com/proxy Annual Report - http: //www. ge. com/ar 2013 Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 24 of 34

Proxy Card Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 25 of 34

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Proxy Card Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 27 of 34

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Notice / Proxy Statement • State law? • Federal law? – Governance • • Election of directors Corporate governance Board of directors / committees Directors’ compensation – Executive compensation • Management proposal #1 • Compensation D&A • Committee report – Audit committee • Management proposal #2 • Committee report – Shareholder proposals – Additional information Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 30 of 34

Annual report Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 31 of 34

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GE management 2007 2011 2009 Corporations: A Contemporary Approach 2013 Chapter 15 Shareholder Information Rights 2012 Slide 33 of 34

Board of directors … Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 34 of 34

Board of directors (2008) Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 35 of 34

Board of directors (2009) Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 36 of 34

Board of directors (2010) Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 37 of 34

Board of directors (2011) Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 38 of 34

Board of directors (2012) Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 39 of 34

Board of directors (2013) Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 40 of 34

Director Outside/Inside Background Since W Geoffrey Beattie O CEO, Woodbridge Co (Toronto) 2009 John J Brennan O Chair Emeritus, Vanguard Group 2012 James I Cash O Emeritus Prof, Harvard MBA 1997 Francisco D’Souza O CEO, Cognizant Technology Solutions 2013 Marijn Dekkers O Chair, Bayer AG 2012 Ann M Fudge O Former CEO, Young & Rubicam 1999 Susan Hockfield O President, MIT 2006 Jeffrey R Immelt I – not inde CEO, GE 2000 Andrea Jung O Former CEO, Avon Products 1998 Robert W Lane O Former CEO, Deere & Company 2005 Rochelle B Lazarus O Former CEO, Oglivy & Mather 2000 James Mulva O Former CEO, Conoco. Phillips 2008 James E. Rohr O Former CEO, PNC Financials 1997 Mary L. Schapiro O Former Chair, SEC Robert L Swearinga O Prof (ex-Dean), Cornell Accounting 2002 James Tisch O CEO, Loews Corp. 2010 Douglas A Warner O Former Chair, JP Morgan 1992 Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 41 of 34

? g n i th y n a e c ti o n u o y o D Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 42 of 34

The results, please …. Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 43 of 34

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“Scavenger hunt” [questions] [answers Odd = T / Even = F] Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 49 of 34

The end Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 50 of 34

Management (2006) Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 51 of 34

Management (2007) To our investors Corporate Executive Council Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 52 of 34

Management (2008) To our investors Corporate Executive Council Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 53 of 34

Management (2009) Dear fellow owners, 2008 was a tough year and we expect 2009 to be even tougher. Corporate Executive Council – not shown Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 54 of 34

Board of directors (2006) Corporations: A Contemporary Approach Chapter 15 Shareholder Information Rights Slide 55 of 34

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