Symbolic Corporate Governance Politics

IntroductionPoison pills. Proxy access. Separation of the Chair and CEO positions. Staggered boards. Majority voting. Secret ballots. Independent directors. Say-on-pay. How many battles have been fought over corporate governance reform? How much ink has been spilled over what the partisans present as burning issues? Each controversy is claimed to be important. Yet, in retrospect, or even from a contemporary disinterested perspective, the stakes hardly seem to justify the intensity of the contest. What could be going on?This is hardly an unusual situation. The material stakes in political disputes are often unrelated to the vigor of those contests. Often, even after high-profile, bitterly fought battles over policy, nothing changes. How is this phenomenon-a gap between rhetoric and reality, combined with minimal material stakes-to be understood, especially when it is so common as to be predictable?In this Article, we consider the possibility that corporate governance politics, like politics more generally, may have a significant "symbolic" element. When the stakes and the intensity are largely divorced from the specific issue being debated, one should ask whether politics is serving other functions, including a "mythological" or "ritual" function. In Part I, we review a selection of corporate governance controversies and show that they typically display a striking gap between rhetoric and reality, with small or zero material stakes. In Part II, we consider a variety of explanations for this gap. In doing so, we start with the familiar "public interest" and "public choice" analyses, and then introduce Thurman Arnold's "symbolic" view of politics as developed in The Folklore of Capitalism. In Part III, we consider the implications of the symbolic aspects of corporate governance politics. We close with a brief conclusion.I. Some Illustrative Corporate Governance ControversiesAn interesting feature of corporate governance politics is that there seem to be new controversies every year. Although there is a certain degree of uncertainty regarding the high-profile issues, there is significantly less uncertainty as to the prominent protagonists. The one sure thing is that we will never have a year without any controversies. It is almost enough to make one believe there is a corporate governance reform "industry" that demands activity to keep itself going.In this Part, we analyze four issues over which intense corporate governance disputes have recently arisen: poison pill proposals, proxy access, majority voting, and supermajority requirements. For each issue, we review the sharp rhetoric employed by the partisans and then explain why the actual stakes were small or trivial. We then consider, as a fifth issue, mandatory bylaw amendments, that-curiously-have not become a focus for activists even though such amendments could generate tangible changes. That shareholder activists and managerialists wage battles over issues of little import, while ignoring more meaningful issues, suggests that activism has a significant "symbolic" element and cannot be fully explained by the material stakes at issue in a given controversy.A. Poison Pill Proposals1. The IssueOne of the most common shareholder proposals asks boards to redeem a poison pill or to submit it to a shareholder vote. A 2000 shareholder proposal at Baxter International is typical:RESOLVED: The shareholders of Baxter International Inc. ("Company") request that the Board of Directors redeem the stock purchase rights issued December 9, 1998, unless said issuance is approved by the affirmative vote of a majority of the outstanding shares at a meeting of shareholders held as soon as practicable.1According to Georgeson, which compiles data on shareholder proposals filed in S&P 1500 firms, poison pill proposals were the most common type of governance proposal filed in the 1987 to 2004 period.2 These proposals also tend to gamer substantial support from shareholders. …