Post Date: April 5, 2006

Professor Lucian Bebchuk

Three major U.S. corporations -- AIG, Bristol-Myers Squibb and Time-Warner -- recently amended their corporate by-laws in response to stockholder proposals submitted by Professor Lucian Bebchuk.

While stockholders usually propose advisory, non-binding resolutions, Bebchuk’s proposals involved the adoption of binding by-law provisions. "In my view, the potential benefits to investors from such proposals have not been fully realized," said Bebchuk. "Such proposals might produce, without outside regulatory intervention, binding governance arrangements tailored to the circumstances of specific companies."

Bebchuk designed model proposals and submitted them to a number of companies. "I am grateful to the law firm of Grant & Eisenhofer for its valuable advice during this process," he said. Following discussions with Bebchuk, some of these companies agreed to adopt by-law amendments:

• Bristol-Myers Squibb adopted a by-law based on Bebchuk’s proposal that limits the board’s power to adopt and maintain a poison pill. Under the adopted by-law, a poison pill must expire within one year following its adoption or last extension, and any decision to adopt or extend a pill requires approval by two-thirds of the directors.


• AIG also adopted a by-law based on a proposal submitted by Bebchuk and draws on an approach put forward in an article by Bebcuk and Marcel Kahan. Under the adopted by-law, the company will reimburse costs and expenses incurred by stockholders submitting proposals that obtain majority support.


• In the case of Time-Warner, Bebchuk's proposal focused on the treatment of directors that receive more “withhold” votes than “for” votes in an election. Time-Warner already planned to adopt a different arrangement as part of its corporate governance policy. Following discussions with Bebchuk, however, the company agreed to incorporate this arrangement into its by-laws.

In the coming proxy season, proposals by Bebchuk are expected to be on the ballot at five companies:

• a proposal concerning reimbursement of proponent expenses at Chevron;
• a proposal concerning poison pills at Halliburton;
• a proposal concerning directors who received more “withhold” than “for” votes at General Dynamics; and
• proposals concerning the disclosure of executive retirement benefits at El Paso and Home Depot.

The text of Bebchuk’s proposals and supporting statements can be found at http://www.law.harvard.edu/faculty/bebchuk/policy.htm.