Times are tough. We all know that…even corporate boards and the federal government are feeling the not-so-subtle pinch. This economic crisis is of epic proportions, and the catastrophic fall of several high-profile corporations has many wondering not only how this all happened, but who is to blame for it?
Accusations of short-term planning, poor judgment, and individual greed have brought corporate accountability into the spotlight. In particular, concerns have been raised as to whether corporate boards of directors are properly focused on shareholder interests, exercising proper oversight of management, and whether they are appropriately held accountable for their decisions.
Recently, the Securities and Exchange Commission voted to propose changes to shareholder proxy access in efforts to make it more easily accessible for shareholders to nominate candidates, and have their nominees included in company-issued ballot materials.
Reasoning behind the Proposal
Typically, incumbent board members choose whom to nominate and include it in a company’s proxy materials that are sent to shareholders. If a shareholder wishes to nominate a candidate of his or her choosing, they have to wage a proxy fight and send out their own ballot materials to other shareholders…a costly course of action.
The proposal is designed to give shareholders a genuine and affordable ability to exercise their rights to nominate board members for the companies whose stock they own.
The Proposed Rules
While allowing real access to proxy materials for shareholder-nominated candidates may seem to some like a great way for rogue shareholders to upset a director’s board, the SEC has proposed the following rules to keep the potential practice in check.
* Shareholders must own a certain percentage of a company’s voting securities (varies by a company’s worldwide market values). They can combine holdings to meet these thresholds.
* A one-year holding period would be required of any shareholder wanting proxy access.
* Shareholders must sign statements of their intent to hold onto their securities until the annual meeting.
* Shareholders must certify that they do not wish to gain more than a minority representation on the board, and that they are not holding their stock in an attempt to change the control of the company.
While it may sound very democratic to bring a strong shareholder voice to corporate ballot, do we really need to bring the fundamentals of political democracy to corporate voting sessions to ensure fair play?
No Blanket Regulations
Some who are against the SEC’s proposed changes argue that allowing shareholders more proxy access would not benefit the election process and could potentially cost companies more in time and material expenses.
Some opponents feel strongly that a company should be permitted the right to elect members to their boards whom they feel will do the best job in the interest of the company. They fear that special interest groups could hijack companies and/or that shareholders would not be able to choose the best candidates for nomination. Others believe that shareholders are not that interested in the nomination process and are more inclined to trust their incumbent board members.
Others argue that one or two bad boards do not justify these kinds of blanket regulations and/or the federal government’s imposition on the state regulation of their corporate governance is not necessary. They raise the point that this type of federal regulation should only be applied on a case-by-case basis.
Those for the proposed changes argue that the proxy access amendments would bring a sense of healthy competition to the nomination process. It would allow shareholders to select nominees with the most relevant backgrounds to represent them. It would also ask board incumbents to prove to shareholders (and others invested in their corporation) why their nominees are the best candidates for the job.
They argue that shareholders would become more involved in the voting process and feel more empowered to hold board members accountable for their actions, thus ensuring fair competitive practices and fair elections.
While the SEC’s proposed changes to proxy access may seem daunting to some, the fact remains that shareholders have always had the right to nominate candidates for the board elections. Therefore, making it easier and more economical for them to do so does not scream of injustice.
After all, even if shareholders were more easily able to put their chosen nominees on the ballot within a company’s proxy materials, it would in no way ensure that their nominee(s) would be elected to the board.
In this time of economic crisis and looming questions of corporate accountability and an astounding lack of answers, it seems important for companies to disclose and allow as much transparency as possible with their shareholders. After all, they have a vested interest in the companies, and the boards are in place to protect their interests.