Recognizing that shareholders face a distorted set of choices when management “bundles” more than one separate item into the same proxy proposal, in 1992 the SEC enacted a pair of rules meant to protect shareholders from this practice. Bundling deprives shareholders of the right to convey their views on each separate matter being put to a vote, and instead forces them to cast a vote on the single proposal as a whole. This management practice may force shareholders to choose between rejecting the entire proposal or approving items they might not otherwise want implemented (as with the proverbial spoonful of sugar to help the medicine go down, shareholders may be required to accept the good with the bad). To better protect the shareholder franchise, the SEC’s bundling rules prohibit joining together multiple voting items into a single proposal with a single box on the ballot. While these basic principles are easily stated, in practice the rules have been difficult to implement.
In our new article, Are Companies Impermissibly Bundling Proposals for Shareholder Votes?, we provide the first comprehensive evaluation of the SEC’s bundling rules. We begin with a careful dissection of the rules themselves, as well as a close analysis of their interpretation by the courts. We then provide the first large-scale empirical study of impermissible bundling in management proposals. Drawing on a data set of more than 1,500 management proposals between 2003 and 2012, we show that bundling occurs more frequently than indicated by prior literature.