Monday, June 21, 2010

Some History

I've been reading a bit about the background of the Securities and Exchange Commission's rules regarding proxy fights.

There were several high-stakes high-publicity proxy fights in the early and mid 1950s, involving for example Montgomery Ward and the New York Central.

The Montgomery Ward case led for example to an early court test of the right of corporations to stagger their boards of directors. It also led to an ancillary fight over whether funds paid by a stockholder to an agent for the purpose of waging a proxy battle are an "ordinary and necessary business expense."

Such battles inspired a book by David Karr (1918-1979) which proved popular, Fight for control (1956), and that in turn helped focus the attention of the SEC.

Then, as now, the SEC tends to go where the public attention is.

What was the effect of the rules introduced at that time? They made life more difficult for the challenger, and thus easier for the management. Mark J. Roe, Delaware’s Competition, 117 HARV. L. REV. 588 (2004) wrote, "In the 1950s, the SEC federalized proxy contests to make them harder for insurgents to win, moving even before states acted definitively.”

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