Senate and House conferees reconciling financial regulatory reform legislation should keep a provision affirming the SEC's authority to issue rules permitting shareholders access to the corporate proxy process to nominate directors.
Shareholders worry that conferees might agree to an amendment calling for the SEC to study access for an additional six months or a requirement for shareholders to own at least 5% of shares in a company in order to nominate a director.
Shareholders are ready for access now.
Proxy access is a cornerstone of financial market regulatory reform. Elections for directors go to the heart of corporate governance and accountability, both supporters and opponents agree.
The Securities and Exchange Commission has been studying proxy access almost continually since 2003, when it proposed a rule. In 2007, it proposed two alternative rules on proxy access. Those proposals were unsuccessful. Then last year, it proposed another rule. In each case, the SEC has received hundreds of comment letters on the proposals with a wide range of views.
The SEC does not need more time to study the issue. Also, a 5% threshold would be a hurdle difficult for shareholders to surmount, rendering access virtually meaningless.
Shareholders are justifiably concerned the proxy access effort again might be fruitless.
Opening the process would help awaken complaisant boards and draw candidates from beyond a close circle of nominees. Competition among candidates would encourage shareholders and corporations to put forth qualified and experienced nominees committed to serving the interests of shareholders.
The SEC's latest proposed rule would limit shareholders in aggregate to nominating from one director to up to 25% of the directors on a board, whichever is larger, and restrict those shareholders in what corporate actions they can achieve on a board, such as a change of control. Concern by proponents of the status quo expressed in SEC comment letters about narrow special-interest candidates disrupting boards are without foundation. Candidates would have to have wide shareholder support to win election to the board.
Access especially would reinforce the principle — that often seemed weak among some directors — that they represent shareholders, not corporate management.
Corporations that already nominate such directors who act in the interest of shareholders unlikely would face alternative candidates. Such board composition is the objective of access.