Business Groups Gear Up To Fight SEC Proxy Access Proposal
By Sarah N. Lynch, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- Key business groups are complaining that the U.S.
Securities and Exchange Commission is rushing its controversial proxy proposal
and may be overstepping its authority with the plan.
The 250-page proposed rule aims to make it easier for shareholders to nominate
corporate board candidates. To implement new rules in time for the 2010 proxy
season, the SEC would need to approve changes in the fall. The agency could act
as early as Nov. 9.
The SEC doesn't currently plan to extend the comment period for the proxy
proposal. A two-month comment period expired Aug. 17.
"This is an extremely significant rule-making and it has enormous impacts in
the economy," said Tom Quaadman, an executive director at the U.S. Chamber of
Commerce.
"We don't think 60 days is long enough," Quaadman added. "We don't think the
SEC has provided a compelling reason for this rule-making to begin with."
Although it is still early in the regulatory process, the proxy rules are
widely expected to end up in court if they are approved.
Opponents fear proxy access may shift too much power to activist investors and
trample the rights of states, which have traditionally had jurisdiction over
corporate governance issues.
"A single rule would unnecessarily deprive Delaware corporations of the
flexibility state law confers to deal effectively with myriad different
circumstances that legislators and rule makers cannot anticipate," the Delaware
State Bar Association wrote in its letter.
Stanford Law School Professor Joseph Grundfest called the rule contradictory
because it would not allow shareholders the right to install their own proxy
access standards.
"Administrative agencies are wise not to contradict themselves when
rulemaking," he wrote. "Contradictions invite courts to overturn agency action
as arbitrary and capricious."
The proposed proxy rule is one of the major issues at the top of SEC Chairman
Mary Schapiro's agenda. It serves in part as a response to the financial crisis,
in which critics say risk-taking by companies went unchecked. Shareholders
should be empowered to hold public companies more accountable for their actions,
they say.
The proposal would allow shareholders of companies with a global market value
of $700 million or more to have their board nominees included in corporate proxy
materials, if the shareholders own at least 1% of the company's shares.
Shareholders of midsize companies would need a 3% stake and shareholders of
small companies would have to own 5%.
The idea has received cheers from investor advocates and unions who are urging
the SEC to move swiftly to approve it, saying action in this area is long
overdue. "Far too many boards of directors remain dominated by the chief
executive officer, who often plays the key role in selecting and nominating
directors," the Council of Institutional Investors said in its comment letter.
Schapiro has exhibited confidence that the SEC is well within its jurisdiction
by proposing the proxy access rule, even though some of the key groups opposing
it have successfully fought the SEC in other court cases.
In fact, the SEC has had trouble in recent years winning some key court cases
that challenged its rule-making.
A U.S. appeals court just last month sent an indexed annuities rule back to
the SEC because it failed to consider its effect on competition. Additionally,
the U.S. Chamber of Commerce several years ago successfully fought a rule
requiring 75% of mutual-fund directors to be free from ties to company
management.
But the case proxy access opponents often cite is from 1990, when a U.S.
appeals court ruled in favor of the Business Roundtable. In that case, the court
said the SEC exceeded its authority with its "one-share, one-vote" rule, which
barred exchanges from listing the stock of a corporation that takes actions
which would restrict or reduce the per share voting rights of existing common
stockholders.
Cornish F. Hitchcock, an attorney who helped draft the comment letter for the
Council of Institutional Investors, said the Business Roundtable decision is "
light-years away" from the current SEC proposal and that the SEC is within its
jurisdiction.
"If you look at the statute in question, it grants very broad discretion to
the SEC to regulate the solicitation of proxies," Hitchcock said. "The Business
Roundtable got lucky in the one-share, one-vote case and they are milking it for
all it's worth."
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@
dowjones.com.
(END) Dow Jones Newswires
08-18-091342ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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