Chamber Calls for Transparency and SEC Oversight of 3D Program

In comments to the SEC on proxy plumbing issues, the US Chamber of Commerce expresses concern that:

Directors, who are implicitly or explicitly beholden to an individual, or to a special interest group, may have a conflict of interest with the fiduciary standards that directors must adhere to. A potential example of this is the CalPERS 3D Program… It is unclear what if any safeguards are in place under the 3D Program to insure that members of the pool of shadow directors adhere to their fiduciary responsibilities, if elected to the Board, and not act in the interest of a particular individual or a specific group. Accordingly, the CCMC believes that the 3D Program should be required to become transparent in its operations and publicly disclose among other things:

  • The extent and purpose of the 3D Program and what shareholder interests it is advancing;
  • The process that the program grants membership in its director pool, including the involvement of third parties in that process, the questions candidates are asked, and the responses candidates provided, as well as any assurances the candidate provided, or which were made to the candidate,
  • The names and affiliations of recruited shadow directors and their qualifications;
  • Any political contributions made by a shadow director to any CalPERS board member;
  • Any award and amount of any contracts or investment business by CalPERS to a shadow director;
  • Any award and amount of any contracts or investment business by a CalPERS board member to a shadow director; and
  • Any personal relationship between any CalPERS board member and any shadow director.

Any other organization that would seek to use the 3D pool of shadow directors should have to issue similar disclosures as listed above. Additionally, we believe that appropriate supervision should be given by the SEC to insure transparency and disclosure whenever such a list of potential nominees is drawn up by a group or groups that may be engaged in an effort to use the newly promulgated proxy access rules or combine short slates.

CalPERS and CalSTRS have a third party handling the database, and an advisory panel of experts, including companies, to steer the project. It’s therefore an arms length facility. Of course, any director nominated to a company board would serve under the same duties as any other director.

When similar suggestions were brought up in comments on proxy access rulemaking, it was pointed out that several go well beyond what is required for candidates involved in actual proxy contests that could result in a change of control. Why should proxy access candidates and their sponsors, who can’t take control, face more stringent requirements?

It might be interesting to see similar disclosures (and more) with respect to candidates vetted by current corporate boards and CEOs, as well as oversight by the SEC of that process. And how about transparency of the operations of the Chamber of Commerce? Talk about “shadow” governance…

I’m all for transparency, as long as long as the rules are principles based and apply to all sides. I would love to see forums where institutional and retail shareowners can ask questions of all board candidates before voting their proxies, like the recent forum CalPERS candidates participated in. (see Video Friday, 9/7/2010)

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3 Responses to Chamber Calls for Transparency and SEC Oversight of 3D Program

  1. James McRitchie 11/04/2010 at 1:38 pm #

    @Eleanor Bloxham Thanks Eleanor. Readers can see her full comment letter to the SEC at

  2. Eleanor Bloxham 11/04/2010 at 1:30 pm #

    In making my recommendations to the US SEC in my August 17, 2009 comment letter on proxy access for shareholders, making it easier for shareholders to nominate directors in the US, I noted that “An important principle for all boards is that directors should act in the best interests of all shareholders. ‘Board members should act …in the best interest of the company and the shareholders’ and ‘where board decisions may affect different shareholder groups differently, the board should treat all shareholders fairly.’ (OECD Principles of Corporate Governance: 2004, p.24) ‘Minority shareholders should be protected from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly, and should have effective means of redress.’ (OECD Principles of Corporate Governance: 2004, p.40) “

    “In other countries, where it is commonplace for the board to be composed of directors nominated directly by shareholders and where more of the directors, in fact, are large shareholders, there can indeed be issues that arise with respect to the loyalty of the director to the company, all shareholders and stakeholders. We have seen similar issues in this country where there are different classes of shares, with different voting rights. Similarly, the issues of loyalty can arise when directors are nominated based on a selection process heavily driven (in substance if not form) by the Chief Executive Officer ‐‐ or by a governance committee that has not established a solid director succession program to ensure that the skill sets and energies of the board match the changing circumstance of the corporation. No ‘refreshment’ in the pool of director candidates may provide stability on the board, but given the fast pace of change, can indicate a failure of the board nominations process ‐‐ a failure that results in board composition which doesn’t match the current environment and corporate needs. “

    “To address these issues, which, I believe, apply to all board nominees, I would propose that all directors nominated (whether nominated by the existing board or by shareholders) who wish for their names to go forward in nomination, be required to prepare a statement for shareholders as part of the proxy process that would stipulate that the candidate understands that as a director, if chosen, their obligations are to act in the best interests of all shareholders, including minority shareholders, and to act without preferential treatment related to who may have nominated them.”

  3. Andrew Shapiro 09/23/2010 at 6:47 pm #

    It is no more clear what if any safeguards are in place to insure that the pool of directors screened by managements and nominated by legacy directors adhere to their fiduciary responsibilities and not act in the interest of a particular individual or a specific group (AKA- the legacy board and management). State fiduciary law standards are applicable to all directors. There should be no presumption that nominees put forth by real economic owners will act more contrary to the interests of shareholders than nominees (legacy directors for the most part) who are nominated by individuals who probably have less alignment of interest with shareholders. This is just another veiled attempt to put up costs and hurdles to shareholder access.

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