E-Mail from Lynn Turner on Proxy Access

An email from Lynn Turner below and frequent emails this morning from Tracey Rembert highlight key provisions we are in danger of losing, in the broader fight for shareowner rights and corporate governance. Elected officials need to hear from all of us about how important these provisions are, especially proxy access. Corporations are lobbying hard in an 11th hour push. Proxy access is in DIRE danger, as are many reform provisions. Please take five minutes and pick up the phone or draft an email (see posts below for who to contact). If we lose these key fights, we lose years of momentum. See also, Senate Conferees Vote to Restrict Proxy Access, RiskMetrics, 6/17/10.

Here’s the email from former SEC Chief Account, Lynn E. Turner:

Today was a very, very good day for Wall Street and Big Business in the halls of congress and a very, very poor day for Main Street and Investors.  Developments in the House/Senate Conference that occurred today include:

Investors Ability to Hold Corporate Executives and Boards Accountable are eliminated or seriously watered down by Senators and White House


The bills adopted previously by both the House and Senate would give the SEC the authority to adopt rules that would give investors equal access to the annual proxy with management for purposes of nominating directors.  The SEC has proposed rules that would give investors that had a threshold of the company’s stock the ability to nominate directors.  It was generally expected that threshold would end up a 3%.  Even at that threshold, it would be difficult for enough investors to pool their holdings together to nominate as a group, a director.  Also the SEC would likely limit how many directors in a year could be nominated.

However, today Senator Dodd has proposed language that would effectively prohibit shareholders from having proxy access in a tremendous blow to any attempts to hold corporate boards accountable for their actions.  I understand that in reviewing the Dodd language more carefully, there appears to be an even more pernicious aspect:  the amendment strikes the reference in the current language to “shareholders” in the plural and substitutes “shareholder” in the singular and then goes on to impose the 5% ownership requirement on any SHAREHOLDER who seeks access to the proxy.  This seems to require that a group of shareholders seeking access to the proxy would have to EACH be a 5 percent shareholder.

This would completely gut the proxy access provision because there would be no single 5 percent shareholder for most corporations of any significant size, and thus the 5% ownership threshold would never be satisfied.  The SEC has always envisioned permitting a group of shareholders, such a public pension plans to aggregate their holdings in order to satisfy the minimum ownership threshold for proxy access.  The Dodd language appears to completely reverse that and would mean that for most large corporations proxy access would not be available to shareholders.

Just as an example, GE has no single shareholder with 5% or more in stock.  The top three shareholders, BlackRock, Vanguard and State Street each hold approx 3.4%.  There are three instititional investors that hold 1.1 to 1.2% of the stock.  After that, all shareholders own less than 1%.  In fact, the top 50 shareholders only own 32.8%.  That ensures no single shareholder could in fact “commandeer” and election as many in the business community have falsely argued.  And getting 50% of the vote for any single director candidate still requires substantial and WIDESPREAD support among investors.

Senator Schumer from NY and Representative Waters from California have been fighting very hard for investors on this issue and working to keep in the original proposal.  At the same time, I understand from a number of sources, that the White House and Treasury department are “carrying the water” for the business community, including the Business Round Table or its members on this issue.


In the Bill passed by the Senate,  there was language that required any candidate up for election to the board of a public company, to receive a majority of the votes cast, in order to win election (The same rules as apply to congressional elections and members of congress).  That is because today, investors can only vote for a director or withhold their vote, which is the equivalent of not voting, as the vote does not count in determining whether a director is elected.  In fact, a director receiving just one vote (even if their own vote) is elected according to what can only be considered very ridiculous and insane law.

I understand the Senate has now agreed to strip this language on majority voting which would have established democracy in the board room, out of any final bill.

Democrats (DURBIN, Inouye) Prevailing in Limiting SEC Necessary Resources.

For years, the SEC has had Congress put severe limitations on the resources made available to it.  To resolve this shortcoming contributing to a failure in regulation, the US Senate voted in its legislation to provide the SEC with Self Funding, Just as all the banking regulators have, as the new proposed consumer protection bureau has, as the regulator for credit unions and Freddie Mac and Fannie Mae have.

The members of the House agreed to self funding.  However, now in a bizarre twist of fate, two key Democrats, Senator Durbin and Inouye are once again attempting to strip this language from the bill, once again handcuffing the agency in a most serious fashion, and just as Congress is asking the SEC to do much, much more.  As a result, Senator Dodd has told Senator Schumer, who once again has been a tremendous champion for the SEC and investors on this issue, that he must strike some deal or accord with Durbin and Inouye and amend the language that these two senators previously voted for when they voted to approve the senate bill at the end of May. In the future, when the SEC comes up short of funds again as it most certainly will, and cannot carry out regulation as it should, one can only label it the “Durbin/Inouye” folly.

Congress considers Limiting SEC Regulation of Securities as it Limited Regulation of Derivatives

Some congressional members of the conference, such as Senator Harkin from Iowa and Senator Johnson from South Dakota, a home for Insurance companies, appear to be giving difference to members of the insurance industry who continue to press for inclusion in the conference report of anti-consumer legislation to exempt equity-indexed annuities from securities regulation.

Equity-indexed annuities are hybrid products that combine elements of both insurance and securities, but they are sold primarily as investments. Indeed, as documented in a seven-part Dateline NBC hidden camera expose, they are among the most abusively sold products on the market today. Responding to a rising level of complaints, the Securities and Exchange Commission voted in late 2008 to adopt rules regulating equity-indexed annuities as securities, a move that was immediately challenged in court by the insurance industry. In deciding the case, a U.S. Court of Appeals sided with the agency on the basic issue of whether equity-indexed annuities should be regulated as securities while remanding the rule with respect to procedural issues. Having failed to prevail in court, the insurance industry has turned to Congress to preempt legitimate securities regulation of this product and do their bidding.  The reasons this is so anti investor, anti consumer and anti Main Street includes:

Equity-indexed annuities are complex products whose returns fluctuate with performance of the securities markets. Absent regulation under securities laws, they can be sold by salespeople with no more understanding of the markets than the customer.

Although the National Association of Insurance Commissioners has developed a model suitability rule for annuity sales, it has not been adopted in all states. Regulation under securities laws would provide national uniformity, would bring to bear the added regulatory resources of the SEC, state securities regulators, and FINRA, and would provide additional investor protections in the form of improved disclosures and limits on excessive compensation.

Exempting equity-indexed annuities from securities regulation would set a dangerous precedent and encourage the development of additional hybrid products designed specifically to evade a more rigorous form of regulation.

This highly controversial measure which is opposed by consumer advocates as well as state and federal securities regulators was not included in either the House or the Senate bill and is not germane to the underlying legislation. To include it in the conference report would be a gross violation of the integrity of the legislative process.

Congress Exempts a large Group of Public Companies From Having to Ensure their Internal Controls will Produce Financial Statements Without Errors

In 2002, in light of hundreds of billions of dollars lost from corporate scandals such as Enron and Worldcom, resulting from false and misleading financial statements, members of congress passed a law that required ALL public companies to have their internal controls inspected by their independent auditors to ensure against misleading financial statements. That bill passed in the Senate by a 97-0 margin and in the House with all but three votes.

The House had passed a bill last December that would have exempted all public companies with under $75 million in market value, which includes companies such as Blockbuster and Zales, from having those inspections done. This despite investors time and time again telling congress and the SEC they were willing to bear these costs in order to get accurate financial statements. And also despite the fact there were almost 750 of these companies over the last year and a half who had to restate their financial statements for errors, the single large group of companies with such errors reported.

But in a reversal, the House told the Senate today they would not require that in the final legislation. In once again a bizarre twist, the Senate who did not have any such exemption or provision in its bill, voted to put it in. Led by Senator Crapo who introduced the language, and joined by two democratic senators, Senator Johnson from South Dakota and Lincoln from Arkansas, these senators got a permanent exemption put into what will be the final bill, giving an exemption to all these companies, which represent approximately half the public companies, and with over $375 billion in market value. And Senator Dodd today noted that the White House was once again behind this move as well.

Senators To Let Wall Street Get Away Car Drivers Get off

And finally, a couple of years ago, the Supreme Court Ruled that Securities Laws today, prohibit investors from suing someone who knowingly provides substantial assistance to someone who is committing a securities fraud, unless that person tells the investor they are doing so (as if anyone would do such a stupid thing). The court also said in their opinion that if congress wanted to change the law, it was up to congress to do so. At the time, both Representative Frank and Senator Dodd wrote letters vehemently condemning the ultimate decision the court reached.

The House, included language in their bill last December that would allow investors to recover from those who negligently or fraudulently assist others in the commission of securities fraud. In the Senate, Senators Specter and Reed and others proposed language that would all recover when it could be proven some knowingly or recklessly provided substantial assistance in the commission of a securities fraud.

Once again, the Senate, and I am told with Senators Dodd concurrence, are opposing the House on this issue and insisting that consistent with current law and the Supreme Court ruling, one can still knowingly provide substantial assistance to others in the commission of a securities fraud and avoid a shareholder lawsuit. One can only ask how condoning such behavior today, when over 100 million Americans have their savings invested in the markets, is REFORM.

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