Stephen Bainbridge, in an uncharacteristically sloppy argument, rails against Lucian Bebchuk and his “acolyte” Robert Jackson for continuing to spread the claim that shareholders ought to be actively involved in an ever-expanding array of corporate decisions, by giving shareholders “a greater role in corporate political speech decisions.”
I can understand that Professor Bainbridge resents interference by shareowners, since he believes boards should have exclusive domain over such activities. Fair enough. However, he then argues the SEC’s change in position regarding proposals influencing corporate political speech is like the proxy access issue decided by AFSCME v AIG. The SEC must explain the change in its interpretations,
preferably by way of a formal rulemaking subject to APA checks and balances, with opportunity for comment by affected parties.
Unlike political contributions, there was never any question that nomination to boards was a matter “significance,” so the SEC had a specific prohibition against proposals “relate[d] to an election” (Rule 14a-8(i)(8)).
However, Rule 14a-8(i)(8) applied only to proposals “used to oppose solicitations dealing with an identified board seat in an upcoming election” (also known as contested elections).
In 1980 Unicare Services included a proposal to allow any three shareowners to nominate and place candidates on the proxy. Shareowners at Mobil proposed a “reasonable number,” while those at Union Oil proposed a threshold of “500 or more shareholders” to place nominees on corporate proxies.
Many private ordering proposals were presented over the years but opponents had nothing to worry about, since in decades of experience, no shareowner proposal ever won a majority vote. That changed in 1987 when Lewis Gilbert’s proposal to allow shareowners to ratify the choice of auditors got a majority vote at Chock Full of O’Nuts. That win was followed by another in 1988, when Richard Foley’s proposal to redeem the poison pill passed with a majority vote at the much larger Santa Fe Southern Pacific Corporation.
After many years of access, just as shareowners actually began getting a few majority, the SEC changed their interpretation of the phrase “related to an election” to include future elections, not just current year elections — and they did so without public discussion or even disclosure. That was the rationale of problem decided by AFSCME v AIG.
In contrast, most social issues — whether the rights of people in South Africa or gays in America, or political speech decisions — evolve over time. At some threshold, SEC staff judges them to be “deemed of political or social significance,” no longer subject to exclusion as “ordinary business.”
Although one can always argue about timing, there is little question the decision in this case is of a fundamentally different nature than the change of interpretation questioned in AFSCME v AIG. Bainbridge should argue the merits of denying shareowners an advisory role in political speech head on, not through analogy to AFSCME v AIG.
As an aside, it is hard to overestimate the amount of damage done when the SEC prohibited proxy access by private ordering back in 1990. Imagine if, during the last two decades, shareowners had the ability set up systems where directors could actually be voted out of office and replaced by directors nominated by shareowners. Think of the problems we might have avoided. Certainly, we wouldn’t have bothered with three attempts by the SEC to renew proxy access and the current lawsuit by the Chamber and BRT. We might even have avoided the financial crisis.