Shareholders should be careful what they wish for in terms of proxy access. The Securities and Exchange Commission's proposals enabling them to nominate candidates to a company's board of directors could be of doubtful advantage to disgruntled shareholders compared with a traditional maverick proxy contest.
Access is a great idea and the SEC should adopt such a rule to improve shareholder voice on boards, whose directors often come from a closely knit circle.
Access, called by shareholder activists the holy grail of corporate governance, would create competitive elections for directors. Shareholders putting forth a nominee will, of course, want their candidate to prevail, so to improve their chances of winning they probably will want to campaign to promote the candidate beyond the corporate proxy statement.
Such a campaign, through whatever media, will cost money — money pension fund advocates of proxy access were trying to avoid spending by gaining use of the corporate proxy material.
But the money spent on such a campaign under the SEC's proxy access proposal could be a relatively less efficient way to effect change in the direction of a board and corporation than a traditional maverick proxy contest.
The SEC's proposed rule would limit shareholders in aggregate to nominating from one director up to 25% of the directors on a board, whichever is larger, and would restrict those shareholders in what corporate actions they could achieve on a board.
In many cases, shareholders might wind up nominating only one candidate. But the cost of the campaign could be as much as the cost of a proxy contest, which has no restrictions on the number of nominees or the sweeping changes successful candidates could bring to a board.
Mary L. Schapiro, SEC chairman, said this month she expects the commission to vote early next year on the proxy access proposal, which the SEC introduced in June. In a separate move to grant access, Sen. Charles E. Schumer's Shareholder Bill of Rights Act, introduced last May, is pending in the Senate Committee on Banking, Housing and Urban Affairs.
Access is not an unqualified solution to making it easier and less costly for shareholders to nominate their own candidates and to improve corporate performance, and it will not be without unintended consequences.