Corporate Governance

Regime Change and the SEC's Corporate Governance Agenda: #9 Shareholder Communication Rules

By J. Robert Brown

The shareholder communication rules represent another area demanding reform.   These rules, as my article of 20 years ago noted (The Shareholder Communication Rules and the Securities and Exchange Commission: An Exercise in Regulatory Utility or Futility?) are a disaster.  They are time consuming, cumbersome, and largely impede the process of communications between companies and shareholders.  For an agency with a primary motivation of ensuring adequate disclosure, these rules represent a serious inconsistency with this mission.  Reform of these rules has been the subject of another petition received by the Commission (and languishing since 2004) and a Coalition has been set up to encourage reform in this area.

Among the many many problems with the rules, the most significant is probably the ease with which beneficial owners can object to the disclosure of their identity (OBOs).  Most, apparently, object, making the list largely worthless as a mechanism for direct communications with shareholders.  The rules need to move in a direction where the right to object is either eliminated or made much tougher.  Beneficial owners can still obscure their identity through the use of some sort of nominee arrangement or by transferring them to an entity. 

The Division of Corporation Finance should be immediately instructed to begin developing a rule proposal to reform these rules.

Full post as published by The Race to the Bottom on December 30, 2008 (boomark / email).