Senate Banking Gets Message From Investors

Members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs were sent a AFRtoSenateLetterJan20-2010 from signatories representing a broad coalition of investors and market participants (including the publisher of urging them to require proxy access and majority votes for director elections.

We believe Congress should adopt director election reforms in two ways: (i) shareholders should have the ability to nominate directors through inclusion of their nominees in the company ballot and proxy materials and (ii) directors should not be elected unless they receive majority support from shareholders who cast their votes.  These are fundamental rights that should be available to shareholders in the US.

Signatories included academics, religious groups, CSR/SRI funds, investment advisors, consumer protection, unions, foundations, and the Council of Institutional Investors (CII). Several who signed are also members of the SEC’s relatively new Investor Advisory Committee, in fact, fully half the members of that Committee signed.

In a separate letter to the SEC, dated January 14th, CII stated:

When the fog of various myths about proxy access and “private ordering” is dispelled, it becomes clear that only a uniform, federal proxy access rule can truly remedy the deeply flawed director election process and empower investors to hold boards accountable. As the SEC reviews this second round of public comments, we urge the Commission to reject the following myths about its proposed proxy access rule.

Their letter goes on to address the myths that changes to state law makes a federal proxy access rule unnecessary, that proxy access will subsidize investors leading to excessive nominations or election of “special interest” directors and that shareowner opt-out is an “investor choice” approach to proxy access. Each myth is dispelled with excellent arguments. I urge readers to read the letter directly, posted here: CII1-14-10ProxyAccessCommentLetter.

See also their November 18, 209 letter to U.S. Senate Committee on Banking, Housing, and Urban Affairs:

Majority Voting for Directors. At most U.S. public companies, directors are elected by a plurality of votes cast, rather than by a majority. Since nearly all director elections are uncontested, plurality voting results in “rubber stamp” elections and directors who are accordingly less accountable to shareowners. As mandated by the discussion draft, majority voting in uncontested elections ensures that shareowners’ votes count and makes directors more accountable to the company’s owners.

In an email to me yesterday, Anne Simpson, Senior Portfolio Manager for Corporate Governance at CalPERS, noted:

We think it is vital that proxy access get passed without an opt out provision, which is being floated as a compromise… a dangerous precedent. Imagine if companies could opt out of producing financial statements? Or pay disclosure? If directors cannot be removed, and they cannot be replaced, then we have a rotten core… system.

She goes on to emphasize the importance of the SEC being “kept on track.”   More comments from the people whose savings are at stake “would surely be good.” She then includes a copy of their letter of January 19th offering comments on the reports and data sources cited in the SEC’s latest consultation concerning proxy access.

Again, like the CII letter addressing myths, this is one that should be read by everyone concerned with proxy access, since it addresses arguments put forth by the Business Roundtable. Obviously, many of their CEO members would rather continue hand-picking their boards.

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