The latest call for action come from the Council of Institutional Investors, which voted at their annual meeting to push the SEC to enact rules that would allow shareholder director nominees to be listed on corporate proxies, according to a Dow Jones report. Earlier this week, five large public pension funds sent a similar letter to the Commission seeking action on the matter (See Pension Funds Urge SEC Action on Proxy-Access Issue ).
The letter sent by the Council, and the public pension funds earlier in the week, seeks a formal ruling from the full Commission on the actions of six companies:
- Exxon Mobil
- Bank of New York
- Eastman Kodak
- AOL Time Warner
- Sears Roebuck
Letter to the Law
Much like the earlier letter, the Council is hoping to use the weight of its 130 members, controlling more than $3 trillion in assets, including large public, labor and corporate pension funds to push the reform through. Currently, only candidates that are nominated by an incumbent board of directors are included on the ballots that companies distribute to their shareholders. If shareholders want to nominate a candidate, companies are not required to mention the candidate or to include that candidate’s name on the ballot. If a shareholders’ candidate wants support, they must bear the expense of printing, distributing and collecting their own ballots, as well as their own campaign material.
The Council argues that such measures amount to spending large sums of money in what is essentially a proxy contest, action normally only required during hostile-takeover bids.
Until recently, the SEC staff had found that proxy access proposals, as well as other proposals related to board elections, should be included in a company’s proxy materials. However, the SEC’s Division of Corporation Finance issued a staff opinion letter allowing Citigroup Inc to omit a proposal by the union granting more sweeping shareholder proxy access shareholder proposal.
Often referred to as a “no-action letter,” the SEC communication is not legally binding, but companies routinely follow the advice offered. Shareholders and corporations have the right to appeal the staff rulings’ to the full Commission if the ruling raises a significant policy issue.
SEC commissioner Paul Atkins, speaking to the Council, said the SEC will take up the matter very soon. A resolution by the Commission could range from agreeing with the staff’s no-action letter, reversing the opinion or declining to take a position.
However, this is not the only issue the SEC has to contend with. Officials said the agency has been asked to weigh in on about 475 proposals, mostly from union pension funds.
Atkins, speaking to the dearth of proposals, said he has “misgivings” about the current process, which forces the SEC to referee disputes between shareholders and managers, a time-consuming and often controversial role.
“We have to look at this whole area, because it really hasn’t been examined in the last dozen years,” said Atkins. He said the landscape has changed since the last, big fights in the proxy area, suggesting the SEC may be able to advance some reforms.
In theory, Atkins said any shareholder should have the right to present proposals for consideration, “yet the reality is that all shareholder proposals simply cannot be placed on proxy ballots,” due to constraints of cost of efficiency.
With that, Atkins recognized the deck is stacked toward corporate executives, saying “management is free under current rules to dominate the proxy game,” and spend corporate resources to advance its resolutions and candidates. Given that, he said the SEC must try to strike the right balance and “remain vigilant” in protecting shareholders’ rights.
This stance was followed by SEC officials giving the disclaimer that their remarks reflect their own views, not those of the SEC.
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