Section 711 of the California Corporations Code is so poorly drafted that it almost defies explanation. According to the legislature’s findings, the ostensible purpose of the statute is to facilitate the informed and active involvement of beneficial owners of shares “in holding legal owners and through them, management accountable in their exercise of corporate power”.  The statute purports to do this in at least two ways.

First, it requires a “person possessing the power to vote shares of stock on behalf of another” to maintain a record of the manner in which shares were voted for at least 12 consecutive months from the “effective date of the vote”.  There are several problems with this requirement.  An initial and fundamental problem is that the legislature did not define the term “person possessing the power to vote shares of stock on behalf of another”.  An equally grievous omission is the failure to require any jurisdictional nexus to California.  Because the statute is part of the California General Corporation Law, a reasonable guess might be that it pertains only to shares of California corporations.  However, the legislative intent language refers to domestic and foreign corporations.  Arguably, the issuer’s state of incorporation is irrelevant and “the person” must be in California.  But which person?  Must the “person on whose behalf shares are voted”, the “person possessing the power to vote shares of stock on behalf of another”, or both be located in California?  If so, how much of a California presence is required?  Another possibility might be that the statute applies when meetings are held in California. Section 709, for example applies to any foreign corporation if the election of a director was held in California.

Second, the statute requires the “person possessing the power to vote shares of stock on behalf of another” (whoever that might be) to disclose the “voting record” with respect to any matter involving a specific security or securities in accordance with specified procedures.  Here, the statute slips into further ambiguities.  The request may be made by a person possessing the power to vote shares of stock, but disclosure is required with respect to a specific security or securities.  Are other types of securities, such as limited partnerships, covered or not?  Even more nettlesome is the open-endedness of the definition of “person on whose behalf shares are voted”.  The statutory definition specifies two categories of persons but then states that the definition is not limited to those specified persons.  But who else did the legislature have in mind and how do we know?  To make matters even more confusing, one of the specified persons is a shareholder, beneficiary, or contract owner of any entity (or of any portfolio of any entity) as defined in Section 3(a) of the Investment Company Act of 1940.  This would seem to include mutual funds but the statute excludes a person who possesses the right to terminate or withdraw from entity.  Thus, open-end, but not closed-end, mutual funds are excluded.

There’s more confusion and ambiguity in this statute, but won’t abuse my readers further.