Opinion ID: 1548673
Heading Depth: 1
Heading Rank: 12

Heading: Improper Vote Buying Concern

Text: Shareholder voting differs from voting in public elections, in that the shares on which the shareholders' vote depends can be bought and sold. [5] Vote buying in the context of corporate elections and other shareholder actions has been and continues to be an important issue. [6] Several commentators have addressed the corporate voting process and techniques by which shareholder voting rights can be manipulated. [7] The Court of Chancery characterized vote buying that does not involve the use of corporate resources as third party vote buying. Here, although Kurz is a director of EMAK, he used his own resources to acquire Boutros's shares. Accordingly, Kurz's actions as a third party do not involve the problem of insiders using corporate resources to buy votes. [8] Vote buying has been described as disenfranchising when it delivers the swing votes. [9] In this case, the Court of Chancery opined that third party vote buying merits judicial review if it is disenfranchising, i.e., if it actually affects the outcome of the vote. [10] Applying those principles to this case, the Court of Chancery concluded that the Purchase Agreement between Kurz and Boutros was potentially disenfranchising and should be subjected to a vote buying analysis, because the Purchase Agreement provided TBE with the votes they [sic] needed to prevail and disenfranchised what would have been a silent majority against the TBE Consent Solicitation. Therefore, it determined that the Purchase Agreement should be scrutinized closely. The Court of Chancery noted a 1983 scholarly analysis of shareholder voting which concluded [i]t is not possible to separate the voting right from the equity interest and that [s]omeone who wants to buy a vote must buy the stock too. [11] The Court of Chancery also recognized, however, that over the last twenty-five years [i]nnovations in technology and finance have made it easier to separate voting from the financial claims of shares. [12] Today, the market permits providers to slice and dice the shareholder's interest in a variety of ways, and investors are willing to buy these separate interests. [13] According to a recent scholarly study of corporate voting by Professors Robert Thompson and Paul Edelman, a disconnect between voting rights and the economic interests of shares compromises the ability of voting to perform its assigned role. [14] They concluded that [a] decisionmaking system that relies on votes to determine the decision of the group necessarily requires that the voters' interest be aligned with the collective interest. [Therefore, i]t remains important to require an alignment between share voting and the financial interest of the shares. [15]