The Securities and Exchange Commission was created 75 years ago to protect investors and provide for the proper functioning of the securities markets. To this end, the SEC has very appropriately addressed itself to corporate governance issues. Instead of promoting good corporate governance, its bureaucracy has often been an obstacle, rather than a help, to those seeking better corporate practices.
Let me explain. Shareholders have little opportunity to influence or even express their views to management. That limited opportunity comes at shareholders' meetings, which every corporation is required to hold once a year. But shareholders don't meet at shareholders' meetings; meetings are conducted by proxy. The SEC mandates the rules governing proxies. Those rules require corporations to include shareholder proposals in their proxy material so that shareholders can vote by proxy on those proposals. But, of course, there are limits. Corporations need not include shareholder proposals that aren't legitimate — such as proposals that are improper under state law; proposals that would, if implemented, cause the company to violate any law; or proposals that the company would lack the power or the authority to implement. All other proposals must be included. So far so good, but in practice it often doesn't work quite that way.
When a shareholder submits a proposal, lawyers for the corporation write to the SEC staff giving their view that the proposal need not be included and asking the SEC staff to issue a letter that it will recommend no action against the corporation if it omits the proposal from its proxy statement. Each year the SEC staff issues hundreds of no-action letters to this effect.