SEC policy change would gut the rights of shareholders

Monday, September 24, 2007 12:00 pm
by Marc J. Lane


For no good reason, the Securities and Exchange Commission is mulling over a misguided change in regulatory policy that would hobble the right of shareholders to file non-binding proposals on corporate governance and social and environmental issues with the companies they own.

Commissioner Paul Atkins is leading the charge against shareholders' advisory resolutions, which, in his hyperbolic words, perpetuate "the tyranny of the minority" who leverage their "nominal economic interest to hijack the agenda of all investors." Mr. Atkins wrong-headedly insists that non-binding proxies burden corporate management with unnecessary costs and distractions and tie up commission staff with requests for no-action letters from companies fending off shareholder resolutions.

The SEC, seeking support for the new rules it's considering, is inviting the public to react by Oct. 2. The proposals include an "opt-out" option, which would allow companies simply to disregard advisory resolutions, replacing them with online "chat rooms" or electronic petitions, and a requirement that resolutions submitted in an earlier year must have earned 10% shareholder support to be eligible for resubmission, up from 3% under the current rule. The thresholds for proposals that have been submitted two or three times before would also increase dramatically.

The opt-out option would excuse unresponsive companies that defy shareholders who demand good governance practices.

Substituting online chats or petitions for advisory proposals that can lead to constructive engagement with management would have serious consequences. Only a robust process that vets and addresses shareholders' legitimate concerns can ensure the heightened accountability our markets expect and our global competitiveness requires.

Investor access to proxies has paid dividends. Last year in Chicago , Boeing Co.'s board approved a management-proposed bylaw amendment to permit shareholder approval with a simple majority only after shareholders proposed the change and won the support of most shareholders four years in a row. And McDonald's Corp. agreed to disclose "soft money" political contributions only after a shareholder proposal forced management's hand.

Shareholder engagement drives shareholder value: The common stock of companies that earn the highest marks for corporate governance, social justice and environmental concerns outperforms their peers.

If shareholders are discouraged or prevented from relying on advisory resolutions to influence corporate behavior, they'll be forced to pursue binding bylaw amendments, SEC enforcement or legislative action, at greater costs and with greater effort. Let's vigorously resist the commission's unprecedented initiative to roll back investor rights.

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Reprinted with permission from Crain Communication Inc., Copyright 2007.

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