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Final SEC Vote on Proxy Access May Not Occur Until 2010Submitted by: Ted Allen, Publications

The Securities and Exchange Commission plans to delay a final vote on proxy access until 2010, Bloomberg News reported today.

The SEC was planning take a final vote on its proposed proxy access rule in November, but the commission wanted to give its staff more time to review more than 500 comments that have been submitted by companies, investors, and academics, according to Bloomberg News.

Investor advocates weren?t discouraged by this news, agreeing that the SEC needs to be careful while crafting a rule on the controversial issue of proxy access. The commission previously tried to address the issue in 2007 and 2003.

?We agree that the commission should take the time it needs to deliberate so the strongest possible rule can be created that stands up to the test of time and any immediate legal challenges,? said Richard Ferlauto, director of corporate governance at the American Federation of State, County, and Municipal Employees, and a long-time advocate for proxy access.

?Not having proxy access in place in time for the start of the 2010 proxy season is disappointing, but shareowners have waited years,? Amy Borrus, deputy director of the Council of Institutional Investors, told Bloomberg News. ?A few more months won?t be the end of the world.?

David Lynn, a former SEC lawyer who is a partner with the law firm of Morrison & Foerster, said the commission should take its time on proxy access. ?The last thing we need is a rush job on this,? Lynn said.

The SEC?s two-part access rule includes a new Rule 14a-11, which would set minimum marketwide standards to permit investor groups to nominate directors to appear on management proxy statements. The draft rule would impose a sliding ownership threshold (of 1, 3, or 5 percent) based on market capitalization (or net assets in the case of investment companies). The draft rule calls for a minimum holding period of one year, but SEC chair Mary Schapiro indicated last month that the commission may extend the required holding period, a change that labor investors and some companies have called for.

Corporate advocates and the SEC?s two Republican commissioners oppose the proposed Rule 14a-11, arguing that companies and investors should be able to design their own provisions with stricter access rules. The SEC also proposes to amend Rule 14a-8(i)(8) to permit investors to resume filing access bylaw proposals at companies, provided that the resolutions don?t conflict with the draft Rule 14a-11 or applicable state laws.

Corporate advocates have argued that any marketwide rule should be delayed until 2011 to give companies more time to cope with other regulatory developments, including a New York Stock Exchange rule change that would bar broker votes from uncontested board elections and a proposed set of SEC disclosure rules.

It appears likely that the Rule 14a-11 portion of the access rule-making would face a corporate legal challenge. James Cox, a securities law professor at Duke University, said he believes that a marketwide access mandate would be ?highly vulnerable? to a lawsuit that asserts such a rule is beyond the agency?s authority to regulate corporate proxy disclosures. Senator Charles Schumer has introduced legislation, which Schapiro has welcomed, that would confirm that the SEC has the authority to issue a director election rule, but his bill?s chances for passage are uncertain at this point.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on October 02, 2009 (boomark / email).