Pill Bylaw Proposal Gets 57% of Votes Cast at Disney

Editor’s Note: This post is by Lucian Bebchuk of Harvard Law School.

At their annual meeting today, the shareholders of the Walt Disney Company voted a proposal I submitted to adopt a bylaw provision concerning board adoption of poison pills that I submitted. With 879,028,289 FOR and 626,587,117 AGAINST, and 25,884,804 abstentions, the proposal won about 57% of the votes cast.

Although the proposal failed to get the majority necessary for amending the bylaws, the majority vote in its favor reflected strong shareholder support, and Disney’s chair John Pepper announced at the meeting that the board will give the proposal a “prompt and serious consideration.”

The Disney proposal is of a similar type to the one that I submitted to CA last spring. CA had to place the proposal on the ballot following litigation in the Delaware Chancery Court. An article about this type of bylaw is available here. At the CA annual meeting, the proposal got 41% of the votes, which induced CA to adopt a new pill whose terms enable shareholders to redeem it when a qualified offer is made.

The proposal on which Disney’s shareholders voted was as follows:

It is hereby RESOLVED that pursuant to Section 109 of the Delaware General Corporation Law, 8 Del. C. § 109, and Article IX of the Company’s By-Laws, the Company’s By-Laws are hereby amended by adding to Article III of the Company’s By-Laws as follows:

Section 12. Stockholder Rights Plans

(a) Notwithstanding anything in these By-Laws to the contrary, the adoption of a stockholder rights plan, rights agreement or any other form of “poison pill” which is designed to or has the effect of making an acquisition of large holdings of the Company’s shares of stock more difficult or expensive (“Stockholder Rights Plan”), or the amendment of any such Stockholder Rights Plan which has the effect of extending the term of the Stockholder Rights Plan or any rights or options provided thereunder, shall require the affirmative vote of 75% of the members of the Board of Directors, and any Stockholder Rights Plan adopted or amended after the effective date of this Section shall expire no later than one year following the later of the date of its adoption and the date of its last such amendment.

(b) Paragraph (a) of this Section shall not apply to any Stockholder Rights Plan ratified by the stockholders.

(c) Any decision of the Board of Directors to repeal or amend this Section shall require the affirmative vote of all the members of the Board of Directors.

This By-Law amendment shall be effective immediately and automatically as of the date it is approved by the vote of stockholders in accordance with Article IX of the Company’s By-Laws.

Supporting Statement:

I believe that it is undesirable for a poison pill not ratified by the stockholders to remain in place indefinitely without periodic determinations by the Board of Directors that maintaining the pill continues to be advisable. I also believe that a Board should not be extend the life of a poison pill beyond one year without shareholder ratification when a significant fraction of the directors do not support such an extension.

The proposed By-Law amendment would not preclude the Board from maintaining a poison pill not ratified by the stockholders for as long as the Board deems necessary consistent with the exercise of its fiduciary duties, but would simply ensure that the Board not do so without considering, within one year following the last decision to adopt or extend the poison pill, whether continuing to maintain the pill is in the best interests of the Company and its stockholders.

I urge you to vote “yes” to support the adoption of the proposal.

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One Comment

  1. Arthur Mboue
    Posted Friday, March 9, 2007 at 5:07 pm | Permalink

    I am sorry, I have been writing a book and could not see this blog while reading this corporate program web site board.
    I have to agree with Prof Bebchuck, any poison pill must have a timeline. It is true that Disney directors hold fiduciary duties to their sharholders and will be called without prejudice to act in their best interest. But, this poison pill is shifting too much control from shareholders to last forever. I believe that a good defensive devices would have included a preemptive rights to remaining shareholders and dilution strategy for acquiror only in case of a tender offer. In short, the corporate democracy must keep a brilliant business judgemnt and good faith of directors to act on behalf of the shareholders without walling up their monitoring abilities.
    Therefore, I call for Disney board to restore this corporate democracy without swearing themselves as kings and queens.
    Arthur Mboue, MBA, JD