The New York Times’ Gretchen Morgenson considers “Time to Coax The Directors Into Talking” in her “Fair Game” column in today’s New York Times. Ms. Morgenson compares and contrasts the behavior of directors in American corporations and in their European counterparts.
Directors of U.S. corporations often do not, for example, communicate with the corporations’ shareholders. The directors of U.S. corporations are apparently concerned that they will be overwhelmed with what they see as “frivolous” shareholder communications. Less than half of the directors in a recent poll had communicated with shareholders about how the shareholders can approach them to discuss corporate business. In fact, a recent series of reforms to the bylaws of several major U.S. corporations will expand the shareholders’ opportunity to nominate directors at the corporations’ annual meetings – so long as the shareholders hold at least 3% of the corporations’ shares for at least 3 years. Id.
In contrast, some European corporations are required by law to invite their five largest stockholders to become members of the corporations’ committees which nominate the corporations’ directors. In another European country, a corporation’s chairman of the board is required by law to “supervise the communication process with shareholders.” Id.
It is difficult to reconcile U.S. director silence with adequately fulfilling fiduciary law’s requirements of good faith and fair dealing. Fiduciary duties generally also include duties of information, i.e., keeping the corporation informed of significant developments which affect the corporation. It will be interesting however to see how directors reconcile these two seeming opposites under applicable fiduciary law.
It will be equally interesting to see whether and to what extent the directors’ fiduciary duties including the duty of information are extended to the corporation’s shareholders.
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