Corporate Governance

SEC Chairman Testifies on Proposed New Proxy Access Rules Before Senate Committee

By Jim Hodgson

As Murielle Steven Walsh reported a few weeks ago in her PomTalk post of October 24th, SEC Chairman Christopher Cox has been ?criticized for his ambiguous stance on shareholder proxy access.?  At issue is the fact that current proxy rules do not permit shareholders to offer bylaw proposals to establish director nomination procedures.  The SEC has been pondering this topic for decades; but, many believe that the Commission?s recently renewed focus in this area may actually bear fruit.  One way or the other, Ms. Steven Walsh prepared us for the fact that ?the Chairman?s next move will show where he really stands.?

The comment period on the proposed new proxy rules ended on October 2nd.  And Chairman Cox ?made his move? yesterday in a statement before the U.S. Senate Committee on Banking, Housing, and Urban Affairs.  He began by saying that he was ?happy to explain why [he] support[s] strengthening the proxy rules to better vindicate the fundamental state law rights of shareholders.?  A great start!

Chairman Cox went back to basics as he presented his position as one grounded in the fundamental principles of free enterprise and the enforcement of private property rights.  Seemingly incredulous that state law typically gives shareholders so few rights, the Chairman insisted that ?it?s of the utmost importance that what the stockholder does have is jealously guarded by our legal system.?  And of the few things the stockholder does have, ?the ironclad legal right . . . to choose the company?s directors? is perhaps the most valuable.  That?s why, according to Chairman Cox, ?[t]he federal proxy system should protect and enforce that most important right, not stand in its way.?

Chairman Cox cited the fact that America?s equity investors entrust over $20 trillion ultimately to the directors of the companies in which they are invested.  Enhanced proxy access, then, is ?important to ensure a continued flow of capital to our companies and industries . . . and the best way to ensure that boards of directors remain accountable to the interests of investors.?

That said, Chairman Cox stressed the difficulty of coordinating the input of some 45 million shareholders in the proxy process.  He also made it clear that he could not speak for the other Commissioners or ?predict exactly what the Commission will do on this subject this year.?  With that, Chairman Cox stopped just short of supporting the liberalization of the proxy rules in their current proposed form.  He did promise that there would be changes made to the existing proxy rules, however -- calling the ?do nothing approach? dangerous.  A third option, he said, is open to the Commission:  it is free to take into account potential improvements developed through the public comment process and to incorporate those into any amended proposals.

At the very least, the Chairman did indicate that the current climate at the Commission is open-minded and intent on seeking improved proxy access for the benefit of all shareholders.  And, as far as the Chairman is personally concerned, he has told us ?where he really stands?:  ?commit[ed] to enforcement of the fundamental property rights of every shareholder ?- above all the right to choose the directors of the companies they own.?

Full post as published by PomTalk on November 15, 2007 (boomark / email).