Corporate Governance

Access is Coming

By J. Robert Brown

As we have discussed at length on this Blog (and in this Paper: The SEC, Corporate Governance, and Shareholder Access to the Board Room), the Commission's decision to not provide shareholders with  access to the proxy statement was an incorrect interpretation of the law, inconsistent with the Agency's pro-investor, shareholder mission and, in the end, short sighted. 

Access as proposed by the Commission was really not very beneficial to shareholders.  Under the proposal, shareholders would only have the right to insert a nominee in the company's proxy statement if they first adopted the requisite bylaw.  Even this two step, minimal process drew vociferous criticism from issuers, their supporters (Wachtell Lipton for one) and the opposition from the three Republican Commissioners (Casey, Atkins & Cox).  Chairman Cox worried that if access were left in place, there would be a "law of the jungle." 

We noted that the decision would result in unintended consequences and would ultimately result in increased pressure for access.  Moreover, with regime change, pressure would build for shareholder access directly, without having to go through the two step process proposed by the prior Commission.  

With that in mind, we were pleased to see answers to questions posed by Senator Carl Levin given by the incoming Chairwoman, Mary Schapiro, on her opinion of access and say on pay.  According to her answers, access is coming, at least for large, long term shareholders. 

Here is what she had to say about access:

19. Former SEC Chair William Donaldson proposed establishing a mechanism to allow certain shareholders of publicly traded corporations to nominate a candidate to the board of directors. If confirmed, would you support a rule to allow shareholder nominations of some board members?

Response: Yes. A central tenet of our market system is that shareholders are the owners of the company in which they hold shares, and they should have a way to hold their representatives –- members of the board of directors -- accountable for their actions.  Access to the proxy has been debated for many years, and I believe it is time for a thoughtful approach to proxy access for significant, long term shareholders.

As for say on pay, the matter is not in the hands of the Commission but Congress.  Nonetheless, she supports the idea.  As she answered:

20. What is your view of the compensation paid to executives and market traders at financial institutions? If confirmed, would you support a rule to allow shareholders to express an advisory opinion on executive compensation?

Response: Yes. Like you and millions of Americans, executive compensation has been a concern of mine for some time now, and I believe that it’s an appropriate measure to give shareholders an advisory vote on these matters.

Had the prior Commission adopted the two step approach to access, the pressure likely would have abated.  It will now resume and the results will be far better for shareholders.

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Full post as published by The Race to the Bottom on January 29, 2009 (boomark / email).