Shareholder Voting on All Stock Option Plans: An Unnecessary and Unwise Proposition

Abstract

In 2001, it was revealed that Enron and other American corporate giants had engaged in misleading and corrupt practices. The result was that investors lost hundreds of billions of dollars, and more importantly, their faith in corporate governance and the stock markets. As a result of this crisis, Congress, the SEC, and the major stock exchanges proposed new securities laws and regulations. There were numerous proposals to "clean up" corporations, but few have been approved and implemented. One change that has been adopted requires member corporations of the major stock exchanges to obtain the approval of shareholders for all stock option plans. This marks a significant shift in corporate governance and was deemed necessary by the major exchanges because executives who possessed sizable quantities of stock options played a large part in the scandals that rocked corporate America.

This Comment addresses the modified rule for stock option plans and asks whether it will have a significant effect on corporate governance. The Comment begins by analyzing the history of stock options and the laws and regulations for shareholder voting on stock option plans that existed prior to the new rule. It ultimately concludes that the new rule will do little to prevent future abuses associated with stock options, but will cause a dramatic shift in corporate power from the board of directors to shareholders.

38_51UCLALRev12032003-2004
By uclalaw