Shareholder votes for sale

Whatever you think of Carly Fiorina's management style, she is a shrewd tactician. In the acrimonious proxy battle surrounding the 2002 Hewlett-Packard-Compaq merger, the promerger group, headed by the former HP CEO, squeaked by the antimerger dissidents with less than a 1% margin. But before Fiorina's side could claim victory, the dissidents brought suit, accusing Fiorina's group of, among other things, buying votes to push the merger through. Buying votes? it may be illegal in politics, but in the corporate arena, it is a legitimate, if controversial, strategic tool. in essence, to achieve a corporate goal, management can give cash, loans, or business opportunities to shareholders in exchange for the voting rights attached to their shares. Indeed, the promerger side in the HP-Compaq affair secured its hair-thin lead with the help of 17 million Deutsche Bank votes that HP management had allegedly bought from the bank. In a decision on the case, the judge addressed HP's vote buying,finding that it did not violate Delaware law governing corporate fiduciary duty. The judge also laid down guidelines that have important implications for managers and directors contemplating vote buying.