Continuing the reform of corporate governance, the Securities and Exchange Commission has taken up a hot-button issue: whether to give shareholders a bigger say in who sits on boards of directors. The agency would allow shareholders to nominate directors, with several restrictions.

Historically, the choice of corporate directors has been a take-it-or-leave-it proposition. Companies put director candidates up for election at annual meetings; shareholders either vote for the candidates or declare they want to withhold their votes. The alternative for shareholders who want to replace directors is a costly proxy fight.

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Grundfest suggests a method of continuing embarrassment for companies and directors if a nominee fails to win a specific level of support from shareholders. That, he thinks, would motivate companies to negotiate with shareholders over director nominees.