Shareholder Bill of Rights

Council of Institutional Investors


American corporations are the cornerstones of the free enterprise system, and as such must be governed by the principles of accountability and fairness inherent in our democratic system. The shareholders of American corporations are the owners of such corporations and the directors elected by the shareholders are accountable to the shareholders. Furthermore, the shareholders of American corporations are entitled to participate in the fundamental financial decisions which could affect corporate performance and growth and the long range viability and competitiveness of corporations. This Shareholder Bill of Rights insures such participation and provides protection against any disenfranchisement of American shareholders.

I. One-Share, One-Vote

Each share of common stock, regardless of its class, shall be entitled to vote in proportion to its relative share in the total common stock equity of the corporation. The right to vote is inviolate and may not be abridged by any circumstance or by any action of any person.

II. Equal and Fair Treatment for All Shareholders

Each share of common stock, regardless of its class, shall be treated equally in proportion to its relative share in the total common stock equity of the corporation, with respect to any dividend, distribution, redemption, tender or exchange offer. In matters reserved for shareholder action, procedural fairness and full disclosure is required.

III. Shareholder Approval of Certain Corporate Decisions

A vote of the holders of a majority of the outstanding shares of common stock, regardless of class, shall be required to approve any corporate decision related to the finances of a company which will have a material effect upon the financial position of the company and the position of the company's shareholders; specifically, decisions which would:

IV. Independent Approval of Executive Compensation and Auditors

The approval of at least a majority of independent directors, (or if there are fewer than three such directors, the unanimous approval of all such outside directors) shall be required to approve, on an annual basis: (a) the compensation to be provided to each executive officer of the corporation, including the right to receive any bonus, severance or other extraordinary payment to be received by such executive officer; and (b) the selection of independent auditors.




The foregoing document entitled "Shareholder Bill of Rights" is intended as a set of guidelines to ensure shareholder democracy. The Shareholder Bill of Rights states the rights of shareholders as owners of corporations and is not intended to be an exclusive or static statement of shareholder rights, but is instead meant to encompass general principles of shareholder democracy which are to be liberally interpreted to achieve the contemplated purposes. This explanation provides examples of the types of corporate actions that are intended to be covered by the various sections of the Shareholder Bill of Rights, and briefly explains how the provisions are intended to be applied.

Section I provides for a one share - one vote principle.

To ensure that one generation of shareholders will not be able to deprive future shareholders of their voting rights, this principle cannot be changed by shareholder vote.

Under this principle, the issuance of a class of common stock with nonproportional voting rights would be prohibited.

Common stock issued by corporations following this principle would not be subject to so-called "phased voting" rights, which discriminate, by charter amendment or otherwise, against short-term or small holders of common stock. (i.e., Potlatch charter amendment providing greater voting rights to long-term holders of stock.)

The requirement that each share be entitled to vote in proportion to its relative equity interest in the corporation prohibits the issuance of a class of common stock which represents a fraction of the equity of a share of the class of common stock held by the public but which nevertheless has the same vote.

The provisions of Section I need not apply to corporations with less than 500 shareholders, which is intended to help preserve the management prerogatives of entrepreneurs who have founded small companies, up to the point where the company's shares are widely held by the public.

Section II provides equal and fair treatment for all common shareholders.

This section is intended to prohibit corporations from engaging in conduct which discriminates among holders of common stock, and requires corporations to accord equal treatment to all holders of common stock regardless of their identity, reputation, duration of ownership, or relationship with the corporation.

This section would preclude exclusionary self tender or exchange offers, such as the exclusionary self tender offer made by Unocal Corporation.

This section would also prohibit discriminatory issuances of dividend or redemption rights, including exclusionary poison pills, such as the poison pill issued by Phillips Petroleum (which entitled all holders, except 30% holders, to exchange, upon a triggering event, one share of common stock for high-yield, short-term senior debt of the issuer) or the poison pill issued by ASARCO (which entitled all holders, except a 20% holder, to receive preferred stock having super voting powers).

Tender or exchange offers made to all shareholders but on different terms are also prohibited under this section.

In matters reserved for shareholder action, shareholders are entitled to objective recommendations from management and full and complete disclosure in all proxy materials.

Section III provides that a majority shareholder vote is required to approve certain corporate financial decisions, including greenmail, poison pills, golden parachutes, disposition of certain assets and the incurrence of excessive debt. Furthermore, any such matter approved by a majority of shareholders could be modified, amended or repealed by a majority shareholder vote.

Section III permits a corporation to engage in certain actions not covered by Sections I or II, such as sales of significant amounts of assets or issuances of significant amounts of stock, if the action is approved by shareholders holding a majority of the stock.

Subsection (a) limits the ability of a corporation to pay "greenmail" or to otherwise offer to purchase its shares from less than all its shareholders at prices in excess of the market value of the stock.

Subsection (b) would require shareholder approval of the issuance of nondiscriminatory poison pills, or any other action which is triggered by, and therefore contingent upon, the acquisition by any person other than the corporation of stock representing 20% or more of the voting power of the corporation. Other corporate actions which subsection (b) include:

  1. the issuance of preferred or common stock or options therefore which would dilute the voting power of the existing common stockholders by 20% or more;

  2. the execution of lockup agreements with a white knight or other person considered friendly to management for 20% or more of the corporation's assets;

  3. the execution of an agreement to sell 20% or more of the corporation's assets to a bidder considered hostile by management in exchange for a stand-still agreement or other concession by the bidder; and

  4. recapitalizations which would result in a change in control of 20% or more of the stock or assets of the corporation.

Subsection (c) requires shareholder approval to limit shareholders' rights to elect and remove directors, to determine the timing or length of the directors' terms of office, to consider and vote on other matters relevant to their interests as shareholders and to call special meetings or take action by written consent. This subsection also limits a corporation's ability to manipulate the procedure for fixing a record date to determine which shareholders are entitled to vote on matters.

Subsection (d) requires shareholder approval of golden parachute contracts with executive officers which are triggered by voluntary or involuntary termination of employment and a change in control of the corporation.

Subsection (e) is intended to protect the shareholder from the sale of a principal asset or principal subsidiary of a corporation if such sale would have a material adverse effect on the shareholders, sometimes referred to as the sale of a corporation's "crown jewels".

Subsection (f) is intended to protect the shareholder from the issuance of excessive debt, perhaps in the form of "junk bonds", where such debt would materially increase the potential volatility of the corporation's earnings and threaten the long term viability of the corporation.

The provisions of Section III are limited to specific financial decisions which have a material effect on shareholders and are not directed towards operational decisions which are properly the prerogative of corporate managements.

Section IV provides for certain functions of independent directors.

The approval by independent directors for all executive compensation arrangements and the selection of independent accountants is required.

Approval by independent directors of all executive compensation arrangements or other benefits, including both routine and extraordinary employment agreements, decreases the appearance and likelihood of self-dealing by corporate executives. In approving executive compensation or other benefits, the independent directors should be guided by the requirements of the marketplace and should reflect the objectives and performance requirements of the position.

Independent directors are not as likely to be directly involved in, or affected by, disagreements management may have with accountants regarding sensitive accounting disclosures or other accounting issues.

The definition of independent directors excludes those who have ever acted as executive officers of the corporation and those who directly or indirectly through their affiliated organizations provide substantial services to the corporation.

Approved 04/05/89

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