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For a copy of the referenced Delaware court decision, see


Wall Street Journal, July 18, 2008 article


The Wall Street Journal

July 18, 2008


Delaware Court Rules for CA in Suit

July 18, 2008; Page C6

The Delaware Supreme Court said a shareholder bylaw that would require companies to reimburse challengers who succeed in getting elected to the board was invalid.

In the closely watched case, the pension fund of the American Federation of State, County and Municipal Employees sought to impose a bylaw that would require CA Inc. to pay the "reasonable expenses" to shareholders who successfully elected at least one independent candidate to a board seat.

The court found that the bylaw, as written, went too far because it didn't allow CA's directors to exercise their judgment "to decide whether or not it would be appropriate, in a specific case, to award reimbursement at all." In cases where dissidents run proxy contests motivated by personal or petty concerns, or to promote interests that would be harmful to the company, the board's hands would be tied, the court said.

The ruling is a blow to some activists, who have argued that their ability to nominate independent directors is circumscribed by the high expense. But it could give holders a road map in seeking other changes to the director-election process consistent with the court's decision.

"We're pleased with the...decision," said a spokeswoman for CA, a Long Island, N.Y., software company.

Richard Ferlauto, director of pension investment policy for AFSCME, said, "We're happy to see Delaware law clarified, but the decision makes Delaware less relevant to the discussions about shareholder election rights." He said "the focus for shareholders has to be on the Securities and Exchange Commission and the creation of an appropriate right of shareholder access at the federal level."

The decision comes amid a larger debate on expanding shareholders' say in nominating corporate directors.

The decision isn't a complete loss for shareholder activists, says John Olson, a corporate-governance lawyer at Gibson, Dunn & Crutcher. "The court is soundly affirming that shareholders have the right to propose bylaws relating to the process of electing directors. I think people will try to be creative in ways of using state law to get access to the corporate proxy."

The question came to the Delaware court after the labor union sought to offer a binding bylaw for a vote at CA's annual meeting, set for September. CA and its lawyers argued the resolution would violate Delaware law.

When CA asked the SEC staff to weigh in, the SEC, in turn, asked for help from the Delaware Supreme Court, the first time it has done so since Delaware amended its constitution last year to allow such assistance. The court agreed to decide the matter, citing the importance of the questions at stake.

Robert Giuffra Jr., a partner with the New York law firm of Sullivan & Cromwell LLP, which represents CA, argued that if the bylaw were adopted, CA's directors would become nothing more than rubber-stamping "robots."

Michael Barry, a partner with the Wilmington, Del., law firm of Grant & Eisenhofer, which represents AFSCME, countered that shareholders' voting rights are paramount and that Delaware allows bylaws to direct spending on specific items.

After the court's decision late Thursday, the SEC said CA could exclude the shareholder proposal. CA said it would.

Write to Kara Scannell at kara.scannell@wsj.com1 and Judith Burns at judith.burns@dowjones.com2

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