By: Tracy Levine, President, Advantage Talent, Inc.
On August 25, 2010, the Securities and Exchange Commission voted 3-to-2 to adopt a controversial proxy access rule to facilitate shareholders’ ability to nominate a limited number of candidates for election as directors.
SEC Chairman Mary Schapiro stated, “As a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own………….Nominating a director candidate is not the same as electing a candidate to the board. I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfill the responsibilities of serving as a director. The critical point is that shareholders have the ability to make this choice.”
The new SEC rules do not change any state or foreign corporate law rules governing the nomination and election of directors, they do provide for the inclusion of nominees properly nominated in accordance with state law in the company’s proxy statement. The shareholders claimed victory and the U.S. Chamber of Commerce declared it was against Federal Law and immediately filed suit. The U.S. Chamber of Commerce has been successful in using Federal Courts to strike down SEC efforts to allow shareholder proxy access. These successes came at a different time in history and were before the recent Dodd-Frank overhaul. The SEC has prepared a 450 page response to the lawsuit while the U.S. Chamber of Commerce has asked the courts to temporary delay the rule going into effect. Only time will tell who will win.
The response has been quick and harsh against the U.S. Chamber of Commerce this time around. The Council of Institutional Investors, a group representing approximately $3 Trillion in investments, was quick to put out their own statement, “The Council of Institutional Investors regards the business community’s legal challenge to the Securities and Exchange Commission’s (SEC) “proxy access” rules as an assault on a fundamental shareowner right.” (http://www.cii.org/UserFiles/file/09-29-10%20proxy%20access%20legal%20challenge.pdf) Considering the mood of the country, the fight might not be as clear cut and easy for the U.S. Chamber of Commerce this time around. Shareholders are looking at the decline of their personal wealth while Corporate Executives and Wall Street continue to pay out huge bonuses. Corporations are going to have to be prepared for an uphill battle or a possible loss in the Federal Courts. Good Corporate Governance may require Boards to review their Corporate By-Laws related to Director Elections before the 2011 Proxy season. As stated before, the SEC ruling does not supersede state or foreign laws. A Corporation’s By-Laws will set the backdrop of how the new ruling will affect their Corporate Board.
UPDATE: SEC puts on hold Shareholder Proxy Access until courts make a decision.