Article

The Insignificance of Proxy Access

Proxy access is the right of shareholders to nominate directors and to have their nominees included in the company’s proxy statement. Because proxy access is viewed as dramatically lowering the costs of an election contest, both proponents and opponents of proxy access predict that it will have a significant impact. Contrary to this conventional wisdom, we argue that proxy access will lead to few shareholder nominations, that most of these nominees will be defeated, and that the occasional nominee who may get elected will have little impact.

Based on past involvement in shareholder activism, we believe that neither mutual funds nor private pension funds would make significant use of proxy access. Certain large public pension funds have shown a modest interest in activism and may make some nominations. The entities with the greatest interests in activism hedge funds and union-affiliated funds-would generally not satisfy the ownership and holding period requirements.

When compared to traditional proxy contests and to withhold campaigns, proxy access involves significant disadvantages while promising only modest advantages. The cost savings of proxy access compared to traditional contests are overstated because most proxy contest expenses are discretionary campaign expenses or relate to other expense items that are unaffected by the proxy access rule. By contrast, the limitations that come with proxy access are significant: the number of nominees a shareholder can propose is limited; the level of shareholder support required to gain a seat, as a practical matter, is increased; the company retains control over the design of the proxy cards; and the company retains exclusive access to preliminary voting information.

When compared to withhold-vote campaigns, proxy access has the advantage that, if it succeeds, it results in the election of a dissident director. But this benefit must be weighed against countervailing factors that reduce the likelihood of success: the higher level of shareholder support required for success, the greater challenge of positive versus negative campaigning, and the vulnerability of the dissident shareholders and their nominees to attacks by the company for lack of qualification or conflicts of interest. Such attacks will resonate especially for nominees by unions and public pension funds and may make it difficult to find qualified nominees.

Overall, we believe that proxy access would have some undesirable effects-it would result in some increase in company expenses and may, rarely, increase the leverage of shareholders whose interests conflict with those of shareholders at large-and some desirable effects-it may occasionally lead to the election of nominees to recalcitrant boards, where such nominees may have a modest impact on governance and a marginal impact on company value. None of these effects is likely to be very material, and the net effect is likely to be close to zero.

Socioeconomic Status Discrimination

This Article makes the case for protecting socioeconomic status (SES) under discrimination statutes that govern employment, housing, education, voting, public accommodations, and credit/lending. While others have argued that poverty should be a protected class under the Fourteenth Amendment, the courts have rejected this idea. The possibility of protecting SES under discrimination statutes has received little consideration. I argue that this idea deserves more serious attention. I advance four arguments in favor of adding SES to the list of protected traits. Two moral, one political, and one legal.

First and most straightforward, the values animating discrimination law apply to poverty: Existing discrimination laws protect traits that are subject to pervasive and illegitimate social bias. They cover both immutable and mutable traits. The logic animating these laws applies to poverty, regardless of whether a person was born poor or falls into poverty later in life.

Second, due to the association between race and poverty, SES-based discrimination reinforces and perpetuates racial inequality. A comprehensive strategy for addressing racial discrimination must also address SES-based discrimination. 

The third argument is political: Many policies that have an adverse racial impact have an adverse impact on poor people of all races—e.g., voter ID laws or zoning laws restricting multi-unit housing. Framing disparate-impact claims in terms of SES would highlight the extent that lower-SES people of all races share common experiences of marginalization. This might be a step toward building a multiracial coalition focused on economic inequality—a longstanding goal of many progressives.

The fourth argument is legal: Some have argued that racial disparate-impact law should trigger scrutiny under the Fourteenth Amendment because it requires racially motivated decision making. Because poverty is not a suspect class under the Fourteenth Amendment, disparate-impact provisions targeting socioeconomic disparities would not raise the same constitutional concern.

I explain how protections against SES discrimination could be administered, as a practical matter. Prohibiting SES discrimination would not be as impractical as it might initially seem. Indeed, the practical questions associated with protecting SES are not really different from those associated with protecting race, disability, age, and other traits.

“Personal poverty may entail much the same social stigma as historically attached to certain racial or ethnic groups. But . . . personal wealth may not necessarily share the general irrelevance as a basis for legislative action that race or nationality is recognized to have.[1]

“[S]ociety’s unexamined embrace of class discrimination reflects the irony that class is both the preferred method for and the hidden obstacle to racial justice.”[2]

 

[1]San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 121 (1973) (Marshall, J., dissenting).

[2]Audrey G. McFarlane, Operatively White?: Exploring the Significance of Race and Class Through the Paradox of Black Middle-Classness, 72 Law & Contemp. Probs. 163, 163 (2009).

Powers, But How Much Power? Game Theory and the Nondelegation Principle

Of all constitutional puzzles, the nondelegation principle is one of the most perplexing. How can a constitutional limitation on Congress’s ability to delegate legislative power be reconciled with the huge body of regulatory law that now governs so much of society? Why has the Court remained faithful to its intelligible principle test, validating expansive delegations of lawmaking authority, despite decades of biting criticism from so many camps? This Article suggests that answers to these questions may be hidden in a surprisingly underexplored aspect of the principle. While many papers have considered the constitutional implications of what it means for Congress to delegate legislative power, few have pushed hard on the second part of the concept: what it means for an agency to have legislative power.

Using game theory concepts to give meaning to the exercise of legislative power by an agency, this Article argues that nondelegation analysis is actually more complicated than it appears. As a point of basic construction, a delegation only conveys legislative power if it (1) delegates lawmaking authority that is sufficiently legislative in nature, and (2) gives an agency sufficient power over the exercise of that authority. But, again using game theory, this Article shows that an agency’s power to legislate is less certain than it first appears, making satisfaction of this second element a fact question in every case.

This more complicated understanding of the nondelegation principle offers three contributions of practical significance. First, it reconciles faithful adherence to existing theories of nondelegation with the possibility of expansive delegations of lawmaking authority. Second, it suggests a sliding-scale interpretation of the Court’s intelligible principle test that helps explain how nondelegation case law may actually respect the objectives of existing theories of nondelegation. Third, it identifies novel factors that should (and perhaps already do) influence judicial analysis of nondelegation challenges.

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