An Unusual Boardroom Battle, in Academia

A normally academic question about corporate governance has erupted into a nasty, often personal battle among elite professors, regulators and white-shoe lawyers that has raised the suggestion of securities fraud on one side and abuse of authority on the other.

At the heart of the dispute is an academic paper written last month by Daniel M. Gallagher, a member of the Securities and Exchange Commission, and Joseph A. Grundfest, a professor at Stanford Law School and himself a former S.E.C. commissioner, that was titled “Did Harvard Violate Federal Securities Law? The Campaign Against Classified Boards of Directors.”

The paper took aim at Lucian A. Bebchuk, a Harvard Law School professor who has long researched corporate governance issues and has been an outspoken advocate for increased democracy in corporate America’s boardrooms. Through Harvard’s Shareholder Rights Project, a group he created, Mr. Bebchuk, on behalf of public pension funds, has helped wage proxy contests at 129 companies to change policies that prevent shareholders from electing, or overthrowing, an entire board at once.

Many companies have such policies — known as staggered, or classified, boards — which usually mean that only about a third of their directors come up for election in any year.

Advocates for staggered boards say they create continuity and are an effective defense against a rival company — or activist investor — that tries to take over a company through a proxy contest without paying a premium to shareholders. Opponents like Mr. Bebchuk say such a mechanism silences shareholders, entrenches management and makes it less likely that suitors or activists will emerge, depressing valuations.

At the moment, Mr. Bebchuk appears to be winning the argument. Corporations have been dropping their staggered board structure in droves. Only about 60 companies in the Standard & Poor’s 500-stock index had staggered boards in 2013, down from 300 in 2000, an 80 percent drop, according to the Gallagher-Grundfest paper.

Mr. Gallagher and Mr. Grundfest suggest that companies are dropping their staggered board structures — and shareholders are voting to eliminate them — based, in part, on faulty research by Harvard’s Shareholder Rights Project. Worse, they suggest, Mr. Bebchuk’s project committed fraud by not fully disclosing the extent of contradictory research, which they say is a “material omission” by S.E.C. standards.

“It takes some fancy footwork even to argue that the Harvard Proposal, with its glaring omissions, complies with S.E.C. regulations,” Mr. Grundfest wrote in a blog post in response to an attack on the paper from a Yale law professor, Jonathan R. Macey.


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