Accountability Central: HOT TOPIC: SEC and Shareowner Access to the Proxy

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HOT TOPIC: SEC and Shareowner Access to the Proxy

SEC’s DILEMMA, 2007 – 2008: SHAREOWNER ACCESS TO THE PROXY PROCESS

Updated January 2008

Here is the dilemma for the Commissioners of the US Securities & Exchange Commission in 2008: Should the SEC open up the proxy process (the elements governed by the Commission) for shareowners…or, close the doors to satisfy critics of more access in the corporate sector?

In recent years the SEC has been leaning in favor of more access for the owners of the enterprise – for the director nominations, and for placement of shareowner-sponsored proxy resolutions put to the vote by all shareowners.

In the last half of 2007 the SEC attempted to address its dilemma – come down in favor of owner or manager? – by circulating two “competing” proxy proposals for public comment. On the Friday before the holiday break in late-December the SEC came down in favor of the status quo, or worse – denial of greater access to director nominations and the elections process. Shareowners, and particularly large institutions, are very unhappy with the Commission’s decision. (For one thing, there was not a full board voting.)

Pundits predict that Chairman Christopher Cox will want his legacy to include greater access to the electoral process for shareowners – to advance the cause of Corporate Democracy, evn if on cautious footsteps. In this section the Editors have included the “competing proposals” dust up of 2007 and will continue to bring you news, commentary and research on the advance or retreat of this critical issue – owner access to the corporate electoral process.

Charged with assuring the orderly conduct of the nation’s securities markets, and protection of investors – we could say, assuring the Accountability of financial markets players and public company management to those they serve, shareowners of the enterprise -- the Securities & Exchange Commission has been pressured from all sides in recent years to address the rules for allowing (or disallowing) shareholders to have access to corporate proxy ballots. More access? Less access? No access? All of these are on the table, it seems, as a spirited public debate opened in the late-1980s and all through the 1990s into this 21^st Century.

The trigger for the latest round of intense debate: In July 2007 the SEC’s [five] commissioners voted 3-2 and 3-2 for competing proposals to amend existing federal proxy access rules. Chairman Christopher Cox (a former Republican member of Congress) sided with the two Democrats for the vote on one proposal and then joined the two Republican commissioners to vote for the other (competing) proposals.

Result: Both proposals moved in the public comment period – and did the comments come! At least 24,000 and perhaps as many as 34,000 comments flowed in to the Commission – probably more than on any other topic in the Commission’s 70-plus year history.

In this “Hot Topic” feature the editors will bring you news and updates, commentary and opinion, research findings, status reports, and especially news of the campaigns on all sides of the issues, including the “Competing Proposals” dustup of July – December 2007. The issue is not settled yet. And now we move into the 2008 proxy year with frustration on all sides.

Obviously, shareholder advocates of all types are opposing less (or no) access for shareholders to the ballot process. And just as obvious, a range of corporate interests are lining up to reduce access or eliminate it to the extent possible.

Much is riding on the outcome of the SEC’s future decision-making (rules) for proxy access.

Feature Created Summer 2007

Your suggestions and comments are welcome – where do you stand on the issues?

Comments from Accountability-Central Users

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James McRitchie from Elk Grove, California

jm@corpgov.net

Website

Monday, 17-09-07 12:11

One thing of many the SEC gets wrong in its limited access proposal is the requirement for those proposing bylaw amendments to provide extensive disclosures regarding relationships with the company. While such disclosures are important when shareholders nominate candidates to appear on the corporate proxy, they are not when shareholders are simply trying to get a rule at the company to allow such access.

Adopting such resolutions will be seen as part of good governance, just as adopting majority vote requirements for board elections is considered good governance today. We don't require proponents of majority vote resolutions to provide extensive disclosures; neither should such disclosures be required of those seeking a process for proxy access.

In most cases, when proxy access is granted, it won't be used. The mere threat that it could be used will be enough to get directors to act as if they were actually accountable to shareholders.

For example, on June 5, 2003 the Board of Directors approved the Aria Healthcare Group Inc. Policy Regarding Alternative Director Nominations by Stockholders (the "Policy"). The Policy allows one or more stockholders who own beneficially at least 5% of Aria’s common stock as of the record date of the applicable annual meeting, and who have maintained that ownership level for at least two years, to submit nominations for the Board of Directors and to require the inclusion of information concerning their nominees in Aria’s proxy materials.

What has been the Aria Healthcare experience? No shareholder nominations in 2005, 2006 or 2007. It is possible that the absence of activity can be traced to the 5% threshold for submitting nominations. However, it is also likely that the existence of the policy has encouraged directors to act more responsibly on behalf of shareholders.