Corporate Governance

The Commission and Access: Places Where the Lack of Unanimity on the Commission Strengthened Access

By J Robert Brown Jr.

The Commission wrote an access proposal that contained a number of limitations that will limit the effectiveness of the provision.  The 3% ownership threshold coupled with the 3 year holding period are the most restrictive provisions.  But it could have been much worse and, had there been a need to compromise among the five commissioners in order to achieve unanimity, it would have been.  What are some examples?  The Commission:

• completely rejected the idea that shareholders and companies should be allowed to opt out of the access regime;
• rejected the need for triggering events that had to occur before access became available, something that figured prominantly in the 2003 proposal;
• refused to set aside the right to access during a proxy contest;
• declined to exempt from access investment companies, controlled companies, companies voluntarily registering under Section 12(g), and non-accelerated issuers (although the rule provided for a delay for small companies);
• Limited the board's ability to exclude candidates,
• Allowed the board to disqualify candidates who were not independent based on the objective rather than subjective criteria adopted by the exchanges;
• Refused to require that nominees be independent or unaffiliated with the nominating shareholder or group; and
• Refused to limit the right of losing nominees to stand for reelection the following year.

All of these are areas where, had there been compromise afoot, the Commission could have come out differently.   There are still plenty of restrictions on access will reduce the rule's initial effectiveness.  But this approach does not reflect the influence of those on the Commission opposed to access, it is the way the Commission enters a new, and controversial area -- slowly and delicately.  Instead, time and time again, the rule reflects the wisdom of those who favor access but want to make sure that the implementation is deftly done.    

Full post as published by The Race to the Bottom on August 26, 2010 (boomark / email).