Corporate Governance

Denial of Access and the Rule of Unintended Consequences Continues

By J. Robert Brown

In allowing management to exclude proposals that would sometimes require the inclusion of shareholder nominees in the company's proxy statement, the Commission did nothing to abate the pressure by shareholders for a greater role in the nomination process or to alleviate the requirements of the proxy rules as impediments to the exercise of a state law right to nominate directors.  What the Commission did do, however, was push shareholders towards other avenues, some likely to be far more intrusive in the affairs of the board than access.  We have already noted that AFSCME apparently intends to submit proposals that would essentially require the company to pay the costs of an opposing solicitation.

Another example concerns the recent no action letter issued by the staff in connection with ExxonMobile.  See ExxonMobile (Jan. 3, 2008).  A shareholder submitted a proposal that would impose "qualifications" on board members by requiring that they be large shareholders or represent institutions holding more than 5 million voting shares.  The approach sidesteps the Commission's position on access because it does not require the inclusion of a shareholder nominee in the company's proxy statement.  It does, however, require that when the board selects nominees, it essentially include representatives of the institutional investor category.  While the nominees are still vetted by management, they can only be selected from a limited pool of candidates.  The staff declined to allow the exclusion of the proposal. 

If Rule 14a-8 cannot be used for access proposals, it can be used to force management to pay the costs of a proxy contest or to accept severe limits on the category of people it can nominate for the board. 

Full post as published by The Race to the Bottom on February 02, 2008 (boomark / email).