And then the SEC pulls this chitty!!!
Will the SEC Prohibit Access Proposals in 2008?
Submitted by: L. Reed Walton, Publications
The Securities and Exchange Commission appears poised to adopt a rule that would bar investors from filing proxy access proposals in 2008, a prospect that has alarmed some investors and Democratic lawmakers.
John Nester, the SEC’s director of public affairs, said Chairman Christopher Cox intends to hold a vote on one of two competing draft access rules, though he has not specified which one. Cox then plans to put forward a “proposal to expand shareholder access after the beginning of the year,” Nester told Risk & Governance Weekly.
One of the proposed rules, released for public comment in July, would require investors to hold at least a 5 percent stake to file proxy access bylaw proposals. Cox, a Republican, and the two Democratic commissioners, Roel Campos and Annette Nazareth, voted for that draft rule. However, it appears unlikely that Cox could persuade a majority on the commission to adopt this rule this year. Campos left the agency in September, and Nazareth has announced plans to leave, as well, though she has not specified a departure date.
The second draft rule would essentially block investor access to the proxy altogether, a measure that Cox also voted for along with the commission’s two other Republicans, Paul Atkins and Kathleen Casey. It is this rule that Cox plans to hold a vote on, according to The Daily Deal newspaper, which would allow the SEC staff to resume granting corporate “no action” requests to exclude shareholder access proposals.
The issue of proxy access--the right of investors to nominate directors to appear on corporate proxy statements--has been debated for years by the SEC, companies, and investors. In comments on the draft rules, many investors complained that the 5 percent ownership threshold and new disclosure requirements for filing access proposals would be too onerous for most institutional investors. Corporate advocates warned that proxy access would be disruptive and called on the SEC to bar access proposals.
SEC observers have speculated that the poor reception to the draft rules, in addition to the resignation of Nazareth and Campos, would deter the SEC from trying to address proxy access this year. During a speech to the International Corporate Governance Network, Nazareth called on the SEC not to rush into adopting a new rule without a full complement of commissioners. (For more information on this topic, please see the Nov. 2, 2007, issue of Risk & Governance Weekly.)
Cox, however, insists that a nationwide rule governing access needs to be instituted. “Investors are not protected if we do absolutely nothing,” Cox told Dow Jones Newswires on Nov. 1, adding that if there is no hard-and-fast rule in place, proxy access in 2008 will depend on court decisions, which can vary by jurisdiction.
In response to investor complaints that the 5 percent threshold for filing access proposals is too high, Cox is also considering dropping that requirement to 3 percent when he crafts a new access rule for the 2009 proxy season, The Daily Deal reported.
Proxy access advocates expressed concern, but not great surprise, when asked about the possibility that the SEC would disallow access proposals in 2008.
“I wouldn’t be surprised if they say, ‘We’re going to bar the door for ’08,’ then take another look at [the issue] down the road,” Cornish Hitchcock, an attorney for the Amalgamated Bank’s LongView funds, told Risk & Governance Weekly.
If Cox again allows companies to exclude proxy access proposals, he will “go down in history as an anti-investor chairman,” Richard Ferlauto, director of pension and benefit policy for the American Federation of State, County, and Municipal Employees (AFSCME), told Dow Jones.
Democratic Lawmakers Urge SEC to Allow Access
A group of nine Democratic senators, led by Christopher Dodd of Connecticut, chairman of the Senate Committee on Banking, Housing, and Urban Affairs, have urged Cox not to curtail the right of investors to file access proposals while the commission debates the issue.
In a Nov. 1 letter, the senators called on the SEC not to take action on either draft rule and instead allow shareholders to continue filing proxy access resolutions based on the 2006 AFSCME v. AIG decision, where a federal appeals court ruled that the SEC improperly allowed the omission of an access proposal at American International Group.
“Permitting the post-AIG status quo to continue would protect shareholders’ existing rights, which is an important consideration,” the lawmakers wrote. “This approach could enhance director performance and make directors more attentive to investor concerns and values.”
The letter was also signed by Senators Daniel Akaka of Hawaii, Sherrod Brown of Ohio, Robert Casey Jr. of Pennsylvania, Tim Johnson of South Dakota, Robert Menendez of New Jersey, Jack Reed of Rhode Island, Charles Schumer of New York, and Jon Tester of Montana. All eight lawmakers serve on the Senate Banking Committee.
In the letter, the senators also disagree with Cox’s plan to adopt a new rule this year and then re-examine proxy access in 2008.
“We think such a course of action would be disruptive, could lead to having public companies comply with three different regulatory schemes in two years, and is not advisable,” the lawmakers wrote.
If the commission is intent on pushing a proxy access regulation through before the 2008 season, the agency should approve the rule that allows access proposals by 5 percent shareholders, the lawmakers said.
The Democratic lawmakers also expressed opposition to limiting the right of shareholders to file non-binding proposals. As part of the proxy access rule-making process, the SEC asked for public comment on various suggestions to reduce the number of non-binding proposals, such as allowing companies to adopt their own bylaws to limit shareholder proposals, or raising the resubmission thresholds significantly.
Nov. 14 Senate Hearing
The Senate Banking Committee plans to hold a hearing on proxy access on Nov. 14. Rep. Barney Frank of Massachusetts, who chairs the House Financial Services Committee, held a hearing on the issue in late September. Frank has urged Cox to scrap both draft rules and start over. Proxy access is “much too important to do without a full commission,” Frank told reporters on Oct. 16.
The SEC will hold an open meeting on Nov. 15, but the issue of proxy access is not on the agenda.
Ted Allen contributed to this article, which appeared in the November 9 edition of Risk and Governance Weekly.
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