September 17, 2009
Schapiro on Proxy Access
Posted by Lisa Fairfax

Today I participated in the Transatlantic Corporate Governance Dialogue entitled “The New Role of Government in Corporate Governance,” which was held at the SEC.   SEC Chair Mary Schapiro delivered a keynote address this morning.  Although she touched on a lot of important issues, I was most interested in her remarks regarding proxy reform not only because I have been doing some scholarship in this area, but also because I have read through a lot of the comment letters on the proposed rule and while there are those supportive of reform (at least in some shape), as you can imagine, many of the letters express very strong opposition to what some complain is a “one size fits all” mandated proxy access rule.  In light of this opposition, I was interested to know if the SEC’s desire or will to implement proxy reform had waned.  Certainly not an idle musing given the SEC's historical pattern of proposed access rules followed by inaction or rejection of those rules.  However, Schapiro word’s reflected continued and strong support not only for the rule allowing shareholders to access the corporate proxy statement, subject to certain conditions, but also for the rule enabling shareholders to use the proposal regime to put forth bylaw provisions regarding proxy access—a rule rejected just two years ago. 

Hence, Schapiro stated:

“As I mentioned earlier (and without attempting to diminish the recognized failures by regulators), I believe that many of the problems leading to our economic crisis can be laid at the door of poor corporate governance. Too many boards failed in their primary function of diligently overseeing management. As a result, too many managers took on too much risk and made decisions that were too focused on the short-term.

Corporate governance is about maintaining an appropriate balance of accountability between three key players: the corporation's owners, the directors whom the owners elect, and the managers whom the directors select. Accountability requires not only good transparency, but also an effective means to take action for poor performance or bad decisions.

I believe that the most effective means of ensuring corporations are accountable is to ensure that the shareholders' vote is both meaningful and freely exercised. That is why the SEC proposed rules which would remove obstacles to shareholders' ability to nominate candidates for the boards of directors of the companies that they own.”

These words, with their emphasis on the impact of poor governance practices on the current crisis, indicate a strong commitment to some form of proxy access.  Moreover, during the Q&A, when a question was raised about abuse of a proxy access rule by hedge funds and other investors focused on the short term, Schapiro emphasized her view that short-termism was a serious problem, but noted that the SEC was working through the issue (along with others), and that the SEC had some flexibility to define or redefine how long someone has to be a shareholder in order to trigger an access right so that such right would be extended only to those shareholders with a long-term interest in the corporation.  These remarks suggest that while the SEC is willing to make changes to the proposed rule in order to respond to the concerns raised by the more than 500 comment letters submitted, the SEC is not willing to abandon proxy access altogether. 

To be sure, no one can predict what is going to happen on this issue, but Schapiro’s concluding remarks that the SEC is currently “operating with an invigorating sense of urgency” suggest that this time may prove to be the charm for proxy access.

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