THE NEVER-ENDING QUEST FOR SHAREHOLDER RIGHTS: SPECIAL MEETINGS AND WRITTEN CONSENT

We study the evolution of shareholders' rights to call special meetings and act by written consent from a functional and an empirical perspective. From a functional perspective, we show that these powers are most useful when they can be employed to gain a board majority and only useful if they can be employed at least to change the board composition. As a result, shareholders' ability to act between annual meetings interacts with several other features of a firm's governance structure: (1) the shareholders' ability to remove directors without cause; (2) the shareholders' ability to expand the board; (3) the shareholders' ability to fill vacancies; and (4) the requirement of supermajority vote to do (1)-(3). From an empirical perspective, we construct a panel that follows firms in the S&P 500 index from 2005 to 2017 and hand-code for multiple features of their governance structure. We document a sizable increase in the number of firms that allow shareholders to act between annual meetings-but for a substantial fraction of the firms that allow shareholders to act between annual meetings, we show shareholders cannot use that power to gain a board majority or change the board composition. We also document that precatory shareholder proposals were key drivers of the evolution of the ability to act between annual meetings among our sample firms and study how proponents select which firms to target. We conclude that proponents follow a "pecking order" strategy: they first push firms to declassify their boards, then push firms to allow shareholders to call special meetings, and only then push firms to allow shareholders to act by written consent. However, we do not find evidence that proponents target those firms where a grant of ability to act between annual meetings would be most productive in light of the firm's governance structure. Finally, we offer suggestive evidence that firms cannot appease shareholder proponents by caving into their pressure: proponents seem to be emboldened by firms' earlier grants of shareholder rights to seek additional rights.