Proxy Access Update

A recent report from the Altman Group provides the best short update on proxy access that I have seen. They recommend to clients that “the Rubicon has been crossed. It is time for companies to start thinking about conducting over coming months detailed Governance Risk Assessments examining the challenges that are likely to be presented by shareholders taking advantage of a proxy access rule in the 2011 proxy season.” The main summary of their report is as follows:

U.S. House and Senate negotiators agreed last week to use language in the financial reform bill that will grant the SEC the authority to issue rules on proxy access, but without eligibility or other specific criteria defined by the U.S. Congress. House negotiators rejected efforts led by Senators Christopher Dodd and Charles Schumer to constrain the SEC’s rule-making on proxy access by defining certain eligibility criteria. Sen. Dodd, in a provision detailed in the Senate’s “Counter-Offer” of June 16, had initially pressed for amending: “Section 972 Proxy Access of the base text so that only shareholders that have owned not less than 5% of outstanding shares for not less than 2 years have access to the proxy.” When House negotiators resisted (the 5% level in particular), Sen. Schumer floated an alternative proposal of 3% of O/S held for 3 years + a requirement that a shareholder nominating a director under proxy access provisions would have to maintain an ownership stake for 2 years following the meeting at which their nominee was elected to the board. The latter proposal marked a turning point in the process. House negotiators ended up rejecting all efforts to define eligibility criteria. House Financial Services Chairman Rep. Barney Frank reportedly remarked that “sentencing people to own shares is an odd concept” (Dow Jones, June 24).

Ted Allen provides the most comprehensive coverage with regard to corporate governance provisions. (Lawmakers Release Final Text of Financial Legislation, RiskMetrics, 6/28/10)

Lawmakers Release Final Text of Financial LegislationYou can find a link to the conference report on the financial reform bill at More from Morrison & Foerster at Reconciliation: A Summary Scorecard on Regulatory Reform (Part I) and on the larger bill at Lawmakers guide Dodd-Frank bill for Wall Street reform into homestretch, Washington Post, 6/26/10. See also, SEC Will Have Hands Full Once Financial Reform Passes, The Conference Board, 6/22/10.

However, there is also a reminder that it ain’t over til its over. Bill can’t bank on Brown’s support, The Boston Globe, 6/26/10. Senator Scott Brown, a Massachusetts Republican, said he was withholding support, citing $19 billion in new bank taxes inserted at the last minute. And there’s this from the Wall Street Journal, 6/28/10:

The Business Roundtable, a Washington group that represents big-company CEOs, said Friday it would keep urging the SEC to limit proxy access to shareholders who have held a 5% stake for at least two years. “We will continue our very strong advocacy,” said Alexander “Sandy” Cutler, CEO of manufacturer Eaton Corp. and head of the Roundtable’s Corporate Leadership Initiative… The SEC is considering scrapping the tiered approach and instituting one stake level for all companies, according to a person familiar with the discussions. The Council of Institutional Investors, a powerful association of pension funds, has proposed requiring a 3% stake for two years at all firms. Lawmakers did agree to let the SEC exempt smaller firms, which corporate lobbyists said they would urge.

Of course, it is at small businesses that shareowners generally need the most help, since there are few active institutional investors involved. I guess the’re not too big to fail, or screw their owners.

3 Responses to Proxy Access Update

  1. Andrew Shapiro 06/30/2010 at 10:13 am #

    Further to my comment above critical of the possible idea of exempting small company boards from the risk of proxy access is the definition that has been bantered about for “small company” which measures “public float” of less than $75MM. What this “public float” item could lead to is companies far larger than even $75MM market cap being exempted from the proxy access accountability mechanism. The more shares held by those “affiliated” with the issuer, the higher the overall market cap of the issuer that would gain the exemption. Yet it should be quite obvious that the more shares held by affiliated parties, the greater likelihood of an insular, dysfunctional and completely unresponsive board.

  2. James McRitchie 06/29/2010 at 7:47 pm #

    I couldn’t agree more and hope there is a loud outcry if the SEC provides us another opportunity for comment.

  3. Andrew Shapiro 06/29/2010 at 5:58 pm #

    Exempting small company boards, where greatest governance dysfunction persists, from increased accountability is #ssbackwards!

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