Tuesday seemed to leave open the possibility of further rulemaking on proxy access, but the release itself was quite clear about two things: the SEC would not challenge the court decision and Rule 14a-8 would go into effect on Sept. 13 after the court decision is finalized.
It was this part of the statement that may have given some shareholders some hope:
“At the same time, I want to be sure that we carefully consider and learn from the Court's objections as we determine the best path forward. I have asked the staff to continue reviewing the decision as well as the comments that we previously received from interested parties.”
Many corporate governance attorneys are in agreement that private ordering shareholder proposals should be on boards’ radar for the 2012 proxy season. Robert Lamm, assistant general counsel and assistant secretary at Pfizer Inc., in a Governance Watch webcast
[The Conference Board members need to sign in to view.] yesterday produced by The Conference Board and sponsored by Cleary Gottlieb Steen & Hamilton LLP noted how Rule 14a-8 has come a long way since 2007.
“The whole thinking of the corporate community changed on Rule 14a-8,” Lamm said. “In 2007, they said it would be the end of the republic (if it went into effect). In 2011, they said, ‘why do Rule 14a-11 when Rule 14a-8 already does that.’ Some companies are going to be hit with Rule 14a-8 proposals in 2012.”
In a client alert Wednesday titled “SEC Will Not Appeal Proxy Access Decision; Shareholder Proposal Amendments Will Take Effect,”
Morrison & Foerster wrote the following:
“Chairman Schapiro’s statement also clarifies the future of the amendments to Rule 14a-8, left unclear following the Court’s ruling. As these amendments will become effective shortly, the ‘private ordering’ approach to proxy access should be on every public company’s list of significant issues for the upcoming proxy season. Shareholders who have expressed disappointment in the Court’s decision to vacate Rule 14a-11 may use the mechanism provided by Rule 14a-8(i)(8) to seek to establish a proxy access regime at individual companies. Companies gearing up for the proxy season should plan accordingly.”
The Council of Institutional Investors (CII) was disappointed with the SEC’s decision not to challenge the court decision, but they were happy that the stay was being lifted on Rule 14a-8. (Read its statement
On the other side, the Business Roundtable called Schapiro’s statement about holding out hope on further proxy access rulemaking a “face-saving” maneuver. The organization added that it hopes the court decision will make the SEC more attentive to “rigorous economic analysis” as it writes other Dodd-Frank rules. (Read its statement
With all the interest in proxy access, I plan on writing a Worth Reading post next week that will include more law firm client memos and the blog posts of other corporate governance experts about the ramifications of the SEC decision.
You can expect institutional shareholders to start writing shareholder proposals that would call for proxy access procedures for next proxy season as soon as next week. That’s because as of Sept. 13 the amended rule that is part of the Dodd-Frank Act shareholder proxy access rules will go into effect.
Many of these shareholders and the attorneys working with them basically got some clarity on proxy access this week when SEC Chair Mary Schapiro announced that the rulemaking body will not appeal the U.S. Court of Appeals for the D.C. Circuit’s decision to vacate Rule 14a-11. (The court ruled to vacate the rule mainly because it felt the SEC had not taken into account the costs to public companies.) That was the rule that was approved by the SEC last summer that would have given shareholders the ability to put forth their own director nominee slates to compete with company slates without a traditional proxy fight.
The rule that will go into effect is Rule 14a-8, which allows shareholders to write proposals to allow proxy access. This is commonly known as “private ordering,” which in essence allows shareholders to deal with the issue on a company-by-company basis.
Rule 14a-8 was not affected by the court’s decision since the plaintiffs, U.S. Chamber of Commerce and the Business Roundtable, did not challenge it. But at the time of the suit’s filing in September 2010, the SEC decided to put a stay on both proxy access rules until the court decided. The Sept. 13 date is significant because it is when the stays would expire. Since the SEC decided not to fight the court decision or seek Supreme Court review, the stays are being allowed to expire.