CORONADO, Calif. The Council of Institutional Investors will ask the SEC not to adopt two recently proposed rules on shareholder access to corporate proxy material for nominating directors. Council members voted Tuesday at the CII conference in Coronado, Calif., to submit letters to the SEC later this week, under the agencys process for comment on proposed rules.
One proposed rule could bar shareholder proposals seeking such shareholder access, while the other rule would impose a threshold of 5% ownership and significant disclosure by the nominating shareholders for access.
The council strongly opposes the release of the proposed rule that could bar such access, Jeff Mahoney, general counsel, CII, wrote on behalf of the institutional shareholder group in one of the letters. The release effectively bars shareowner proxy access resolutions without providing investors any meaningful alternative approach to proxy access. As the investors advocate, the commission should not adopt the release unless and until a proxy access approach can be developed and adopted that protects rather than erodes investors rights.
In the face of growing shareowner support for meaningful proxy access, the release reinterprets Rule 14a-8(i)(8) to exclude any shareowner resolutions seeking access to company-prepared proxy materials relating to the nomination and election of directors, Mr. Mahoney wrote in the CII letter.
Unfortunately, far too many director elections remain a fait accompli, regardless of how troubled a company may be, Mr. Mahoney wrote. As a result, the only way that individual director nominees may be effectively challenged at some companies is if a shareowner is willing and able to assume the risk and expense of nominating a slate of candidates and running a full-blown election contest. Such ventures are onerous and cost-prohibitive even in todays world of e-proxy.
On the proposed rule requiring the 5% ownership, Mr. Mahoney wrote that the 5% threshold for submitting a bylaw resolution would be too high a barrier and the proposed related disclosure requirements would be too burdensome. In addition, the proposal might curb shareholder resolutions. The SEC proposed rule would permit companies to put to a shareholder vote a bylaw restricting the ability of shareowners to offer non-binding or precatory shareowner resolutions, a move with negative consequences for the quality of corporate governance practices and the long-term performance of companies.
Although institutional investors collectively own more than 60% of outstanding U.S. equities, about half of that is held by mutual funds and insurance companies, investors that generally do not sponsor shareowner resolutions, the letter said.
Those institutional investors, largely public and union pension funds, that currently engage portfolio companies using tools such as shareowner resolutions account for less than 10% of the total U.S. equity market. In an effort to diversigy, the letter said, holdings that those funds may have in any single company is relatively small, often under 1%.