Model Proxy Access Proposal

Today, the United States Proxy Exchange (USPX) released a Model Proxy Access Proposal that can be presented to corporations for a shareowner vote under SEC Rule 14a-8 to ensure that long-term shareowners have reasonable, but not necessarily easy, means for including board nominations in the proxy materials those corporations distribute—so called “proxy access.”

The Model Proposal is designed to achieve legitimate purposes of proxy access without including anti-democratic provisions that have marred other approaches—most notably the SEC’s vacated Rule 14a-11. It provides two alternative ways parties may qualify to nominate: one is mostly suited for large shareowners, while the other is mostly suited for small shareowners. The Model Proposal imposes no hard cap on the total number of shareowner nominations, although it provides safeguards that obstruct parties from seeking a change in control through proxy access in all but the most unusual (disastrous) situations.

The Model Proposal is released with thirteen pages of accompanying discussion, explaining how to submit the Model Proposal to corporations. It describes some of the history of proxy access, dating to the 1970s. It details the legitimate goals of proxy access and explains how the Model Proposal achieves these without disenfranchising the majority of shareowners.

The USPX has developed the Model Proposal as a means of stimulating debate and experimentation with alternative approaches to proxy access. Implemented as-is, it will provide a reasonable means for most long-term shareowners to participate in nominating directors.

We encourage shareowners to submit the Model Proposal or to use it as a starting point in developing their own proposals. We hope that shareowners will also submit completely different proposals of their own design. Our discussion of issues should assist shareowners in that process.

The success of proxy access depends on experimentation to find what works. The USPX is committed to supporting such experimentation. Releasing the Model Proposal is a part of that effort.

I have raised the subject of proxy access many times on this site (now blog) over the last 16 years, especially since submitting a petition to the SEC in the summer of 2002 with Les Greenberg that helped get the ball rolling again… although we wouldn’t be anywhere without the leadership of AFSCME and many others along the way. I will have much more to say about this proposal but it is 2 a.m. as I write this after the final day of the NACD 100, a visit with “Occupy Wall Street” and a long chat with an old friend who built the first oil refinery in Afganistan and just got tenure at Queens College.

I just want to make long-winded round about point about the provision in the Model Proposal that may be used by small shareowners. I have been getting some flack from my institutional investor friends about the idea that small shareowners, even a group of 100 as required in the model, could have sufficient wisdom to nominate good candidates yet these same people will nod in agreement when Subha Barry, a Senior Vice President at Freddie Mac, asserts that diversity is key. Time and time again, she told us at the NACD 100, a diverse group with less talent and lower skill levels will come up with better solutions than more talented but homogeneous groups.

There have been hundreds of scientific experiments demonstrating the dangers of groupthink, the positive impact of bringing different points of view to problems and of more participatory decision-making, yet mid-level managers often view diversity as “a distraction.” Institutional investors should avoid that mistake.

Working with a relatively small group of USPX members to develop the Model Proposal has been no easy task but the product is better than any one of us would have created alone. We consulted with many experts in the field but the result is mostly our creation after an investment of no money but a considerable amount of time and effort.

If the proposal is successful and we actually begin to make nominations I suspect far more time and effort will go into choosing candidates. Yes, we are small shareowners. In any one company, one member might have $2,000 worth of stock (that may have been worth $5,000 last year) while another has $100,000 invested in the same company. However, critics should keep in mind it is our personal investment. We aren’t using other people’s money.

People may be surprised how much effort individuals are willing to put in when trying to protect their own investment. There will be much more to come as we announce targets and try to persuade other investors to vote for our proposal. In the meantime, I hope you will read our Model Proxy Access Proposal and the accompanying discussion, give it your full consideration and provide us with feedback.


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