Proxy access debate far from over

A few months ago, the DC Circuit blocked the SEC’s effort to force companies to open their proxy statements to shareholder candidates. Yesterday the SEC decided not to appeal that decision. But the SEC didn’t give up on the idea of granting shareholders access to companies’ proxies.

In addition to the across-the-board rule (14a-11) struck down by the court, the SEC promulgated a rule that required companies to include shareholder proposals to grant shareholders proxy access (amendments to 14a-8.) That is, shareholders could try to achieve proxy access one company at a time.

While the DC Circuit case was still pending, the SEC put the case-by-case rule on hold. As part of yesterday’s announcement that the commission wouldn’t appeal the decision on 14a-11, the SEC said it would allow the stay on 14a-8 to expire when the court’s 14a-11 decision is finalized, which should be September 13. That doesn’t mean the case-by-case rule will be enforced starting on September 13, however; it means the SEC will issue an effective date for the rule then.

The SEC’s decision to lift the stay on 14a-8 remains controversial. The Business Law Section of the American Bar Association (ABA) previously wrote to the SEC urging it not to lift the stay, pointing out that during the proxy access rule making process, the SEC took positions on 14a-8 that are inconsistent with a decision to lift the stay now.

For example, the letter notes that the SEC always argued 14a-8 wasn’t a stand-alone provision, but merely supplemented 14a-11. Indeed, the letter notes, the SEC’s entire analysis of 14a-8 under the Administrative Procedures Act was dependent on 14a-11’s existence, thus calling into question the sufficiency of that analysis after the DC Court’s decision.

As a result, the letter states, ‘there exists a clear risk of a challenge to the adoption of the Rule 14a-8 amendments.’

The Council of Institutional Investors (CII), unsurprisingly, takes a different view. Amy Borrus, deputy director of the CII, tells Corporate Secretary the council rejected the ABA committee’s analysis: ‘We do not think the 14a-8 amendments are particularly vulnerable to a court challenge ‒ at least not one that will succeed. In light of that, the stay should be lifted so shareowners can seek proxy access at companies where boards have performed poorly or are asleep at the switch.’

In a letter to the SEC yesterday, the CII made clear how important proxy access is to the council: ‘We look forward to working with the commission in support of the council’s number one priority: the reissuance and implementation of a uniform proxy access rule.’

In July, the Federal Appeals Court for the DC Circuit struck down the SEC’s proxy access rule by a unanimous 3-0 vote, the panel holding that the SEC had violated the Administrative Procedures Act by failing to do an adequate analysis of the rule’s economic impacts.

 Clearly, the proxy access fight is far from over.