May 27, 2009
Bebchuk on Proxy Access
Posted by Gordon Smith

As you would expect, Lucian Bebchuk is in favor of the SEC's new proxy access proposal. In an editorial in today's W$J, he focuses on the issue of whether "one size fits all" in proxy access:

Opponents of the SEC's proposal argue that the SEC shouldn't impose a blanket rule about proxy access, but rather should leave the provision of proxy access arrangement to company-by-company choices. One size does not fit all, the argument goes, and the SEC's proposal would prevent variation and experimentation.

It is ironic that opponents of proxy access now raise the banner of company-by-company choices. In 2007, the SEC examined whether to let shareholders propose bylaw amendments that would establish proxy access for shareholders seeking to nominate directors. At that time, opponents of proxy access persuaded the SEC to prohibit the inclusion of such proposals on the ballot. This prohibition made it rather difficult for shareholders to adopt proxy access arrangements on a company-by-company basis. For many opponents of proxy access, then, uniformity seems to be quite acceptable when it doesn't involve shareholder access but becomes unacceptable when it does.

In fact, the proposed SEC rule would allow some meaningful variation. The proposal would establish some mandatory requirements as to shareholders nominations that would have to be included, but would allow companies to adopt arrangements providing shareholders with more expansive access to the company's proxy.

On the issue of federalism:

Opponents also argue that establishing any minimum requirements for inclusion of director candidates on the company's proxy card departs from the SEC's traditional role into an area best left for state corporate law. However, the SEC's proxy rules already mandate the inclusion of some information, including certain shareholder proposals, on the corporate ballot and accompanying proxy materials. The SEC's proposal would merely expand the current mandatory requirements, and wouldn't enter any new territory.

I am reserving judgment on the details of the new proposal until I have more time to study it, but I side with Lucian on the need for election reform. And this new proposal is sparking a healthy debate.

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