Institutional perspective on shareholder nominations of corporate directors

This paper applies the cost-benefit framework for shareholder activism, utilized by most institutional investors, to the five alternative approaches to shareholder participation in director elections suggested by the ABATask Force on this subject. I show that none of them would likely generate benefits exceeding its costs, although there are worthwhile components of several alternatives suggested by the ABA. I argue that some of the problems involved in the alternatives under consideration could be avoided by allowing institutional investors to cumulate their votes for one director nominee. However, cumulative voting is not permitted by most company charters, which may be changed only if the company's directors put forward a charter amendment for a vote by its shareholders.