Shareholders at some 40% of U.S. corporations would be effectively kept from winning proxy access through their own proposal initiatives unless the SEC allows shareholders use of corporate proxy material to nominate directors, according to a Corporate Library study for the Council of Institutional Investors and ShareOwners.org.
“The case for private ordering assumes that shareholders will be able to initiate proposals opting into or out of an access regime, as well as that voting outcomes reflect the will of the majority,” according to the study, “The Limits of Private Ordering: Restrictions on Shareholders’ Ability to Initiate Governance Change and Distortions of the Shareholder Voting Process.”
“Data on bylaw amendment limitations show that at between 38% and 43% of companies, depending on the index, shareholders are either unable to amend the bylaws or face significant challenges in the form of supermajority vote requirements. … If shareholders cannot amend the bylaws, both opting into and out of proxy access through a shareholder-adopted bylaw amendment are impossible.”
Maureen Thompson, executive director, ShareOwners.org, said in a statement about the study: “The only alternative that will enfranchise investors is a uniform SEC proxy access policy. This new study makes it crystal clear that the alternative is no reform at all in that shareholders at nearly half of companies would not have real choices.”
CII Executive Director Ann Yerger noted in the statement that “while Delaware recently amended its corporation laws to expressly permit proxy access bylaws, at least 40 percent of all public companies are not incorporated in that state. At this point there is no assurance that shareowner-initiated proxy access proposals will be valid in these other states.”
Beth Young, senior research associate for The Corporate Library and author of the report, said: “The findings cast doubt on the notion that shareholder voting outcomes reliably reflect the views of the majority.”
Mary L. Schapiro, SEC chairwoman, said earlier this month she expects the commission to vote early next year on a proxy access proposal the agency introduced in June.
CII is an association of public, union and corporate pension funds whose combined assets exceed $3 trillion. ShareOwners.org is an Internet-based non-partisan organization, promoting financial market reforms. The Corporate Library is a corporate governance research and risk analysis firm.