Setting the Ground Rules for Corporate Elections

Advance notice bylaws (ANBs) have become the principal mechanism for regulating proxy contests. By specifying when and how shareholders may nominate candidates and what disclosures must accompany those nominations, ANBs determine the ground rules for corporate elections. Delaware courts review ANBs under fiduciary duty principles, but that framework has limits: it creates uncertainty, chills nominations, and encourages boards to draft expansive provisions with little risk of sanction.

This Article develops a systematic framework for rethinking the regulation of ANBs. First, modest reforms could retain judicial review while adding prescriptive rules to improve transparency, standardize timing, and equalize disclosure obligations between incumbents and challengers. Second, the SEC could supplant judicial review by requiring nominees and nominators to provide the information called for by Schedules 13D and 14A—even where statutory triggers such as the 5% ownership threshold are not met. These disclosures would operate as both floor and ceiling: companies could not exclude nominations for failure to provide additional information. Third, issuers, activists, and investors could craft a consensus “best practices” bylaw that courts would treat as a benchmark, reducing uncertainty and limiting excesses while preserving scope for private ordering. Finally, a ‘name and shame’ system would impose no additional SEC-mandated disclosures and would limit disqualification to cases of materially false statements, shifting decisions about the sufficiency of other information from boards and courts to the shareholders themselves.

Among these approaches, SEC rulemaking is the most attractive. It aligns with the agency’s historic role in regulating proxy contests, provides a clear and uniform disclosure baseline, and reduces the strategic use of ANBs to entrench incumbents. As a second-best, a consensus best practices model would supply courts with a market-grounded reference point for disciplining excessive bylaws.