Small Investors May Get More Sway on Corporate Boards
SEC Legal Defeat Leaves Investors a Longer Proxy-Access Path
Rich Clement/Bloomberg
A security officer stands outside the U.S. Securities and Exchange Commission headquarters in Washington.
A security officer stands outside the U.S. Securities and Exchange Commission headquarters in Washington. Photographer: Rich Clement/Bloomberg
U.S. shareholders reeling from last month’s rejection of a measure that would have let them put board candidates on corporate ballots may find solace in a measure left standing after the federal court’s decision.
A Securities and Exchange Commission rule taking effect in the wake of that legal challenge lets any investor who has held at least $2,000 of stock for a year submit a proposal for how a firm should open board elections to shareholder nominees. That measure, delayed by the court fight, may provide a two-step path to so-called proxy access.
“We’re entering a new territory here, so we’re going to have a period of sort of feeling this out,” said Jeff Morgan, president and chief executive officer of the National Investor Relations Institute in Vienna, Virginia. “The current wisdom is you’re going to see a lot of these pop up.”
U.S. lawmakers, responding to complaints that corporate risk-taking and pay incentives helped spark the 2008 credit crisis, empowered the SEC to adopt a rule requiring all publicly traded companies to include shareholder nominees on proxy ballots. On July 22, the U.S. Court of Appeals struck down the rule, agreeing with business groups that said the SEC didn’t adequately consider the impact on companies. The ruling didn’t affect the separate rule allowing investor proposals.
The SEC, which declined to appeal the court’s ruling, issued a notice today that the remaining rule will be effective as soon as it’s published in the Federal Register. Advisers to companies and shareholder groups say this measure’s impact is likely to be felt during next year’s corporate proxy season.
‘A Lot More’
“You’ll see proxy access proposals at some of the big companies in the spring,” said John T. Haggerty, a securities lawyer at Goodwin Procter LLP in Boston. “If they do pass, you’re going to see a lot more people putting in proposals.”
Companies are trying to determine whether they should wait for shareholder proposals or offer their own ideas, said Morgan, whose group represents 3,500 publicly traded firms.
The rule will be a new tool for activists that may enable shareholder groups to use the threat of proposals to pressure boards in unrelated arguments, he said.
At the same time, pension funds and other institutional investors haven’t given up hope that the SEC will go back and rewrite its rule to require universal proxy access.
“Now is not the time to give up,” investors including the California Public Employees’ Retirement System said in a statement this week. “We strongly urge the SEC to issue new rules on full proxy access and continue its commitment to providing long-term shareowners with the right to have a say in who runs the companies they own.”
SEC Chairman Mary Schapiro said in a Sept. 6 statement that she directed her staff to “continue reviewing” the court decision. A court filing yesterday officially closed the case, allowing the remaining rule to move forward.
To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net.
To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.
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