SEC Approves Shareholder Proxy Access: Have you reviewed your by-laws?

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.” ( 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.

SEC States CEO Succession Planning a Key Board Responsibility

By: Tracy Levine, President, Advantage Talent Inc.

In 2009, corporations saw executives exiting as their corporations’ economic health were failing and corporate sustainability questionable. These abrupt departures during a critical time in the corporations’ fight for survival magnified the adverse affect of minimal or no succession planning. Corporate Boards found themselves in the position of focusing on finding a leader rather than focusing on the immediate financial problems at hand. If any company should be the poster child of poor succession planning in 2009, it would be the Bank of America Corporation. CEO Kenneth Lewis resigned at a time when the company was in the process of paying back TARP money which ultimately resulted in a 2009 fourth quarter loss of $5.2 billion. It took the Board three months to find a successor. Time that would have been better spent focusing on improving corporate performance.

In the past the SEC has supported the exclusion of shareholder proposals calling for succession planning transparency. Corporate Boards have been able to Rely on Rule 14a-8(i)(7) to exclude this type of information in the proxy. Rule 14a-8(i)(7) allows corporations to exclude information relating to the day-to-day management of the workforce.

Shareholder proposals for strategic succession planning are now getting support from the SEC. The SEC has changed its stance of classifying succession planning as part of the day-to-day operations. Succession Planning is now considered a risk item that needs to be addressed.

SEC Staff Legal Bulletin No. 14E (CF)

“One of the board’s key functions is to provide for succession planning so that the company is not adversely affected due to a vacancy in leadership. Recent events have underscored the importance of this board function to the governance of the corporation. We now recognize that CEO succession planning raises a significant policy issue regarding the governance of the corporation that transcends the day to-day business matter of managing the workforce. […] Going forward, we will take the view that a company generally may not rely on Rule 14a-8(i)(7) to exclude a proposal that focuses on CEO succession planning.”  (

Laborers’ International Union of North America (LiUNA) a long time proponent of succession disclosure had tried unsuccessfully in the past to have their CEO succession disclosure proposals included in the proxy of numerous companies for shareholder vote. In 2010, corporations such as Whole Foods, Bank of America and Verizon were forced to include LiUNA’s proposals for shareholder vote. Approximately 30% of the Whole Foods shareholders, 40% of the Bank of America shareholders, and 33% of the Verizon shareholders voted for the proposal. Even though the proposals were defeated the first time around, Corporate Boards can expect shareholder support for the proposals to grow if the issue is not voluntarily addressed.