Verret on SEC Proposed Shareholder Proxy Access Rule

Opponents of a recent Securities and Exchange Commission (SEC) proposed rule change could challenge the SEC's authority to adopt the change by using a 1990 ruling from the District of Columbia U.S. Circuit Court of Appeals, says Professor J.W. Verret.

SEC commissioners voted to propose Rule 14a-11 by which shareholder nominees could be included on proxy materials mailed out unless prohibited by state law or a company's governing documents. Verret says Business Roundtable v. SEC disallowed an earlier SEC rule barring exchanges from listing the stock of any company that restricted shareholder voting rights in any way. 

"There is significant risk this proxy access rule could be struck down because of this decision," Verret explained, unless the SEC derives the authority through the Shareholder Bill of Rights, a bill currently pending in Congress. Should that bill pass, the SEC would gain authority to mandate proxy access, give shareholders an advisory vote on executive compensation, and require companies to oversee risk through a special board committee, among other things. 

SEC Votes to Propose Shareholder Proxy Access Rule, Delaware Law Weekly, June 3, 2009. By Elizabeth Bennett.

"The Securities and Exchange Commission last week pulled the trigger on a rule change that corporate governance watchers knew was coming, voting for a proposal that would allow shareholders to include independent director nominees on a public company's proxy materials.

"The commissioners voted three Democrats to two Republicans to propose Rule 14a-11, under which shareholder nominees could be included on proxy materials unless prohibited by state law or a company's charter or bylaws, according to a summary of the proposal posted by the SEC. When shareholders send out their own proxy materials, it can cost in the tens of millions of dollars.

"As soon as the full text of the proposal is released, a 60-day comment period begins, after which the SEC can adopt the rule changes in their final form. The text had not been released by press time.

"Rule 14a-8 would also be altered by the would-be changes. This rule has long governed shareholders' ability to include proposals on a company's proxy materials, but it excluded any proposals related to board elections.
The new rule would remove this election exclusion, making it possible for shareholders to propose bylaws that would give their nominees access, according to the SEC's summary.

The provision is similar to this year's revisions to the Delaware General Corporation Law, which become effective Aug. 1."

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