Investor groups defend SEC's proxy authority

Ceres and the Interfaith Center on Corporate Responsibility are urging National Association of Manufacturers' board members to scrutinize NAM's decision to intervene in a lawsuit challenging the Securities and Exchange Commission's authority to approve or disapprove whether a given shareholder resolution must appear on a public company's proxy statement.

A federal judge in May approved NAM's motion to intervene in the case, National Center for Public Policy Research vs. SEC. The National Center for Public Policy Research, a conservative think tank, filed a lawsuit in April in the 5th U.S. Circuit Court of Appeals in New Orleans after the SEC permitted Kroger Co. to exclude from the company's proxy statement a shareholder proposal the group had filed. Shareholders can file proposals before a company's annual meeting. If a company thinks a proposal is out of bounds or has already been addressed, it can file a no-action letter with the SEC, requesting permission not to include the proposal in its proxy statement.

While the National Center for Public Policy Research filed suit to have its shareholder proposal included in Kroger's proxy statement, NAM has a different viewpoint in challenging the SEC, which is why it filed its motion to intervene, Charles Crain, NAM's senior director of tax and domestic economic policy, told Pensions & Investments in May.

"The SEC shouldn't be in the position of dictating a company's speech by forcing them to include, and only allowing them to exclude, proposals that they give the green light to exclude," Mr. Crain said. "We don't think the SEC should have that power."

The decision of whether a company should include a shareholder resolution on its proxy statement should be left to the company, Mr. Crain added.

Ceres and ICCR, which in a news release said they represent coalitions of institutional investors that often use the proxy process to highlight issues of critical concern to the long-term value of their portfolio companies, are concerned that NAM's lawsuit could gut the shareholder proposal process, thereby removing a critical risk management tool, to the detriment of all long-term investors and corporate stakeholders.

The groups on Monday sent letters to nearly 50 NAM board members calling on them to voice their displeasure with NAM's actions.

"The right to file shareholder proposals is a key component of investors' engagement with the companies they own," said Steven M. Rothstein, managing director of the CeresAccelerator for Sustainable Capital Markets, in the news release. "Shareholder engagement has encouraged many companies to adopt governance policies that are now widely accepted as best practices. NAM's intervention, in this case, is an attempt to disenfranchise investors, and we hope NAM member companies will reject this radical attack on their shareholders' rights."

A NAM spokesman could not immediately be reached for comment.