Corporate Governance

Access and Its Opponents: An Overview

By J. Robert Brown

There are once again hundreds of letters submitted to the SEC on its access proposal.  A number of letters are unusual, including one by the Delaware Bar Association, another by 80 law professors (including this one), and one by seven major law firms (with Wachtell agreeing to the group approach rather than file its own letter).  Nonetheless, the positions are unchanged.  Issuers and those who work for issuers oppose access; shareholder groups support it.

When we examined this subject under the prior administration, we noted that the Commission proposed a weak form of access.  It would allow shareholders to submit bylaws that, if they passed, would permit access to the proxy statement at the next meeting.  In other words, access would be limited to the small cadre of companies that saw shareholders adopt (no doubt over vigorous management opposition) the requisite bylaw.   The same groups (issuers and their supporters) adamantly opposed this mild, indeed ineffective, effort to give shareholders access. We noted on this Blog that the consequence would be a more intrusive access proposal.  In fact, at the time, we wrote that no access was better than this form of pseudo access, anticipating that better proposals were on the horizon. It was, to say the least, short sighted.

So now we confront a more intrusive but frankly far superior access proposal.  This one gives shareholders the right to insert nominees directly into the company's proxy statement.  The company and not the shareholder will carry the costs of distributing the basic background information on the nominee and the proxy card that will allow shareholders to vote for the individual. Shareholders will incur any additional costs associated with a campaign for the candidate.

In looking over the opposition letters, we detected two themes that ought to be discussed.  These are themes that go to access in its entirety, rather than particular aspects of the rule.  These include the fact that governance has so improved over the last few years that access is not necessary and that private ordering ought to be the approach, with letters sometimes pointing to the adoption of Section 112 in Delaware and to the widespread use of majority vote provisions.  We have addressed some of this in our comment letter filed on August 17.  We will address them in the next few posts.

For the complete letter filed by this Blog with the SEC on the access proposal, go here.  For a history of access, go here.

Full post as published by The Race to the Bottom on August 25, 2009 (boomark / email).