Confusion About Proxy Access Suit

Readers may have noted the WSJ’s lead editorial of last Saturday, Proxies vs. Profits, railing against the pending proxy access rules and supporting the appeal taken to the D.C. Circuit by the U.S. Chamber of Commerce and Business Roundtable.

However, the editorial misses the fundamental point of the issue: the pending rules do not guaranty anyone a board seat. All they do is allow ballot access. It is up to the minority holder seeking a seat to persuade enough other holders that their election will be beneficial to the corporation. If the rules served to guaranty anyone a seat, the WSJ points as to overriding of shareholder will, would be well taken, but this is simply not the case. By enhancing ballot access, the rules bolster shareholder choice; it is up to them how it is exercised.

The WSJ’s derisive tone toward the shareholdings or views of labor union pension funds is also curious coming from an organization with such conservative leanings. This view disregards the fact that in the economy, shares are shares, lacking any distinctive features associated with the views or identity of their owners. Indeed, it is a fundamental tenet of capitalism that money is fungible and that economic power is different from political power. The WSJ implies that the views of liberal organizations are somehow less worthy of airing than those of other shareholders. Even if one disagrees with those views on their merits, this does not support their suppression. There is simply no basis in corporate law or common sense for maintaining that shareholder identity should be relevant to the right to be heard on corporate issues.

Additionally, it appears that the WSJ has failed to review the briefs filed by opponents of the rules. If they did, they would see that, as the author has previously noted at Expect Proxy Access to Survive Legal Challenges for the Conference Board, their conclusion does not follow from their premise.

The principal basis on which the appeal has been taken is that the process around the rules’ adoption did not comport with the Administrative Procedure Act (APA). However, the principal argument made in the briefs addresses only the economic advisability of the rules. Even assuming they are undesirable, this says nothing about the process by which they were adopted. Like them or not, the rules were expressly contemplated by Congress in the Dodd-Frank law and adopted by the SEC after extensive consideration of public comments, exactly in the manner contemplated by the APA.

Supporters of the rules should consider writing letters to the editor of the WSJ,, to demonstrate that there is a sound, non-ideological basis for them.

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