Home -> Law Blog Directory -> Corporate & Securities Law Blogs -> Institutional Shareholder Services -- Corporate Governance Blog

Corporate & Securities Law

: Institutional Shareholder Services -- Corporate Governance Blog

Schapiro Welcomes Legislation on Proxy Access and Rating FirmsSubmitted by: Ted Allen, Publications

During a House of Representatives hearing on Tuesday, SEC chair Mary Schapiro said she would support legislation that would confirm the authority of the commission to issue a proxy access rule.

Schapiro was asked by Rep. Gary Peters of Michigan if she agreed with Commissioner Elisse Walter?s recent comments that access legislation ?would remove the distraction of challenges to [the SEC?s] authority? to issue a rule to permit investors to nominate board candidates to appear on corporate proxy statements. Peters and Senator Charles Schumer have introduced separate bills that call for proxy access and other governance reforms.

Schapiro told Peters that a ?legislative backstop? would be ?helpful? and said she expected that the SEC?s proposed proxy access rule would face a court challenge. A divided commission voted 3-2 in May to issue an access rule; comments on the proposal are due Aug. 17. SEC officials say they hope to finalize an access rule before the 2010 proxy season.

Business groups and the SEC?s two Republican commissioners have questioned whether the agency?s authority to regulate proxy disclosures would also allow it to impose a marketwide access rule that would impact board elections, which are governed by state law. Earlier this decade, federal appeals courts ruled that the SEC lacked the authority to impose independence rules on mutual fund boards and to require hedge fund registration.

Schapiro also said she would welcome legislation that would allow investors to sue credit rating firms, such as Moody?s and Standard & Poor?s, which have been criticized by investors over the high ratings that they gave to mortgage-backed securities before the credit crisis. Senator Jack Reed of Rhode Island has sponsored a bill that would allow lawsuits against credit rating firms if they knowingly fail to review key information in developing ratings. In the past, courts have ruled that rating companies have First Amendment protection from lawsuits by investors who rely on their ratings.

Schapiro said legislation allowing investor lawsuits may help improve the quality of ratings. ?It may make a big difference. You have to be careful in crafting it. You want credit rating agencies to work,? she said, according to the Reuters news service.

Rep. Paul Kanjorski, chairman of the House?s capital markets subcommittee, agreed and noted: ?Anything we can do to get rating agencies more responsive to quality analysis is vitally important,? according to Reuters.

In her prepared remarks to the subcommittee, Schapiro said the SEC was looking at possible regulations to address ?rating shopping.? The agency may require issuers to disclose the preliminary ratings they receive from credit agencies before selecting a firm to issue a public rating. She also said the SEC would establish a group of examiners to conduct routine compliance reviews of credit firms.

Throughout Tuesday?s hearing, Schapiro generally received a warm reception from lawmakers, including from several Republicans on the subcommittee. Several Democrats promised to give the SEC more resources to hire staff, while Republican Rep. Jeb Hensarling of Texas called for ?smarter regulation and smarter regulators.?

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on July 15, 2009 (boomark / email).