decision by the SEC
to grant a stay on the new proxy access rules and related amendments as requested by the U.S. Chamber of Commerce and the Business Roundtable in their lawsuit, wasn’t seen as a defeat for proxy access proponents. It did add to the confusion surrounding the effective date, which was originally set as Nov. 15, 2010.
Only hours after the SEC filed the stay order, the law firm of Wachtell, Lipton, Rosen, and Katz sent out a client memo
stating: “We recommend that companies continue working to determine the best way to implement proxy access, but wait until the situation is clarified before finalizing by-law revisions and other changes to implement proxy access.”
The memo also stated what everyone potentially affected by the new rules believed following the granting of the stay – most likely the new rules won’t go into effect at the earliest by 2012. It quotes an anonymous SEC spokesman as saying it is the “SEC’s expectation that the legal issues raised will be resolved by late spring.”
As part of the stay agreement, the SEC, along with the petitioners, will ask the U.S. Court of Appeals for the D.C. Circuit for an expedited review of the petition. In its order, the SEC states, “The Commission has discretion to grant a stay of its rules pending judicial review if it finds that ‘justice so requires.’ Without addressing the merits of petitioners’ challenge to the rules, the Commission has determined to exercise its discretion to stay Rule 14a-11 [proxy access rule] and related amendments to the Commission’s rules, including the amendment to Rule 14a-8 [new exclusion rules], pending resolution for review by the Court of Appeals.”
The Chamber and Roundtable were elated with the decision (see press release
) while the Council of Institutional Investors were not, although they were not deflated.
“We welcome the SEC’s order granting our request for a stay on proxy access rules,” said David Hirschmann, president and CEO of the U.S. Chamber’s Center for Capital Markets Competitiveness. “We believe this is a timely and correct decision that will avoid a costly period of uncertainty for all investors.”
“This is a welcome decision that brings clarity for investors and issuers in the coming proxy season and avoids unnecessary costs,” said Larry Burton, executive director of Business Roundtable. “We look forward to proceeding to a hearing of the case on the merits.”
The CII sees it as a bump in the road, as RiskMetrics blogger Ted Allen
“While we are disappointed in the delay, it is not the end of the world,” said Amy Borrus, deputy director of the Council of Institutional Investors. “The Council and concerned investors have pressed for years for this basic shareowner right. A few more months’ wait will not make a big difference. Given the timing of the rule approval and publication in the Federal Register, it was already a stretch for active investors to use access in the 2011 proxy season. We look forward to expedited resolution of this case because of the cloud of uncertainty hanging over the rules as a result of the litigation. We continue to believe that access to the proxy is a fundamental shareowner right and that it will make boards of U.S. public companies more responsive to shareowners and more diligent in their oversight of management.”
In an e-mail, Borrus told me CII has not decided when it plans to file its anticipated amicus curiae brief with the D.C. Circuit Court.
Proxy access was a major issue of discussion at last Thursday’s 2010 Regional Fall Conference of the Society of Corporate Secretaries & Governance Professionals at Time Warner headquarters in Manhattan.
“We’re going to treat it [proxy access] like any other contest,” Robert McCormick, chief policy officer of proxy advisor Glass Lewis & Co. said. “We’ll answer the question, ‘Are the new nominees for the dissidents better the current members?’ The likelihood of a wholesale number of directors being elected through access is remote.”
At the same session on the “2010 Proxy Season Overview and Expectations for 2011,” David K. McHugh, chief investment operating officer for Northern Trust Corp., said his company won’t change how they view such director nomination contests.
“On proxy access, I thought it would be a big topic [next proxy season],” he said. “We have always looked at this on a case-by-case basis. We engage RiskMetrics to interpret our [voting] guidelines. We’ve also hired Glass Lewis in the past to [review] our guidelines to see how they compare to others in the marketplace.”
Looks like the implementation of shareholder proxy access rules will have to wait until the 2012 proxy season, but that isn’t stopping some law firms and shareholder groups from preparing for the inevitable transition to a new way of electing directors.