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26 Aug. 2010 | Comments (0)

The initial reaction to the SEC’s proxy access rule vote yesterday wasn’t very surprising: C-level executives and directors hate it, shareholder groups love it and corporate governance organizations believe it is ushering in a new era of shareholder board dialogue. What is a bit eye-opening from some of the comments is the dichotomy between shareholders, the board and management at most public companies. While most shareholder groups view the decision as a way to level the playing field when it comes to nominating directors, many executives see the SEC ruling as the federal government overreaching its grasp once again. It’s almost like listening to the debate on healthcare reform, where the Democrats lauded the decision to give more access to the insurance system and the Republicans decried the act as socialistic and Big Government-like. Meanwhile, The Conference Board Governance Center focused on the historical significance of the vote and what it means for the future of shareholder board dialogue. [Read press release.] “Now that the SEC has made its determination on proxy access, it is incumbent on boards and shareholders to understand the implications for their companies,” said R. William Ide, III, chairman of The Conference Board Governance Center Advisory Board. “However, this action can also be seen as a symptom of the greater need for more meaningful dialogue among companies, shareholders and boards of directors.” Paul DeNicola, Governance Center and Directors Institute director, put the action in context with other recent regulatory and market moves. “The loss of the broker discretionary vote, a movement toward majority voting, the trend to declassify boards, and now proxy access, provide opportunities to both long-term shareholders as well as investors with a solely short-term focus,” he said. “As a result, board members need to continue to enhance the ways in which they communicate with their investors – or face the very real consequence of being replaced.” Among the most vocal comments, there was the Business Roundtable and U.S. Chamber of Commerce Center for Capital Markets Competitiveness representing the board and management and CalPERS, Calstrs, and representing shareholders. The following is a sample of those comments: Business Roundtable
“Far from effective reform, this ruling will allow special interest groups to pursue narrow agendas and exacerbate the market’s short-term focus, adding more uncertainty than workable solutions at a fragile time in our country’s economic recovery. Our members believe that this newly-created and expanded federal role in how businesses are run is unnecessary and in fact harmful. Rather than encouraging the creation of long-term shareholder value, this new federal right will handcuff boards and directors and stifle American companies’ ability to focus on long-term growth by increasing costs and creating additional uncertainty for the more than 12,000 non-financial publicly traded companies.” -- Larry Burton, Executive Director of Business Roundtable.
Center for Capital Markets Competitiveness
“This special interest-driven rule is a giant step backwards for average investors.  Using the proxy process to give labor union pension funds and others greater leverage to try to ram through their agenda makes no sense.  Instead of giving some investors front-of-the-line passes, the SEC should be focused on advancing the interests of all investors, including retail investors. The Chamber will carefully review the rule that was approved today and will continue to fight this flawed approach using every method available.
“We are concerned that proxy access will allow certain shareholders to have a louder voice than others and harm the very investors this rule purports to defend. The Chamber is committed to a system that allows all shareholders to have an equal voice. The SEC is responding to the campaign of a small group of special interest activist investors while ignoring the needs of the vast majority of investors who will never be able to use proxy access.” – David Hirschmann, President and CEO of the Center.
CalSTRS (California State Teachers’ Retirement System)
“This ruling is most welcome at CalSTRS, which as a fiduciary pledged to preserve our members’ financial security, must maximize the value of its investments for the long haul. One of the lessons of this current economic downturn is to be mindful that governance is a significant risk factor and that greater accountability, which this ruling affords, will go a long way toward mitigating that risk.” -- Jack Ehnes, CalSTRS Chief Executive Officer.
CalPERS (California Public Employees’ Retirement System)
“We believe that proxy access is one of the most important tools we have to improve corporate governance in America’s boardrooms. When necessary, long-term investors now have an opportunity to propose for election to a board knowledgeable individuals who can bring fresh ideas and new perspective to a company’s operations.” -- Joseph A. Dear, CalPERS Chief Investment Officer.
“Proxy access establishes a fundamental shareowner right to hold corporate boards and management accountable. Had this right existed prior to the current financial crisis, it might have put irresponsible boards under greater shareowner pressure to act less recklessly. … We look forward to the full implementation of the rule. At the same time, we encourage the SEC to evaluate the three-year holding period to determine its impact on the effectiveness of the rule.”
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

    Full Bio | More from Gary Larkin


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