Posts Tagged ‘Rule 14a-11’

Proxy Access in the US

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday October 22, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Matt Orsagh, director at CFA Institute, and is based on the summary of a CFA publication, titled Proxy Access in the United States: Revisiting the Proposed SEC Rule; the complete publication is available here.

In this summary of CFA Institute findings, we take a brief look at the history of proxy access, discuss the pertinent academic studies, examine the benefits and limits of cost–benefit analysis, analyze the use of proxy access in non-US jurisdictions, and draw some conclusions.

How We Got Here

Proxy access refers to the ability of shareowners to place their nominees for director on a company’s proxy ballot. This right is available in many markets, though not in the United States. Supporters of proxy access argue that it increases the accountability of corporate boards by allowing shareowners to nominate a limited number of board directors. Afraid that special-interest groups could hijack the process, opponents of proxy access are also concerned about its cost and are not convinced that proxy access would improve either company or board performance.

…continue reading: Proxy Access in the US

Business Roundtable and the Future of SEC Rulemaking

Posted by Jill Fisch, University of Pennsylvania, on Thursday November 15, 2012 at 9:07 am
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Editor’s Note: Jill E. Fisch is a Professor of Law at the University of Pennsylvania Law School.

The Securities and Exchange Commission has suffered a number of recent setbacks in areas ranging from enforcement policy to rulemaking. One of the most serious was the DC Circuit’s 2011 decision in Business Roundtable v. SEC, in which the court invalidated the SEC’s proxy access rule, Rule 14a-11, on the basis that the SEC had failed to conduct an adequate cost-benefit analysis. By imposing an onerous, and possibly insurmountable procedural burden, the decision threatens to paralyze rulemaking by the SEC and other administrative agencies. The effect is particularly troubling in light of the heavy rulemaking obligations imposed by Dodd-Frank and the JOBS Act.

In my article, The Long Road Back: Business Roundtable and the Future of SEC Rulemaking (forthcoming in Seattle University Law Review), I critically evaluate the Business Roundtable decision. Specifically, I argue that, although Rule 14a-11 suffered from a number of flaws, flaws I have noted in other work (see Fisch, The Destructive Ambiguity of Federal Proxy Access, 61 Emory L. J. 435 (2012)), the deficiencies in SEC’s rule-making that led to the adoption of Rule 14a-11 cannot accurately be ascribed to inadequate economic analysis. Nor is the demanding standard imposed by DC Circuit’s decision a product of the statutory constraints on SEC rulemaking. Rather it stems from the court’s skepticism about proxy access and the SEC’s policymaking generally.

The SEC’s inability to defend its proxy access rule against attack was, in part, a product of two important constraints on its policy formation – the notice and comment requirements of the Administrative Procedure Act and the Government in the Sunshine Act. Although commentators have defended both these requirements in terms of transparency and democratic values, they sacrifice consensus building as well as decision-making efficiency, and they allow for the increased influence of political forces and interest groups. These sacrifices are of particular concern in the context of SEC rulemaking and, I argue, were at the heart of a problematic Rule 14a-11.

…continue reading: Business Roundtable and the Future of SEC Rulemaking

Proxy Access: Upcoming Votes at FRX, MDT and HRB

Posted by James McRitchie, CorpGov.net, on Monday August 13, 2012 at 9:26 am
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Editor’s Note: James McRitchie is the publisher of CorpGov.net. Work on proxy access from the Program on Corporate Governance includes Private Ordering and the Proxy Access Debate by Bebchuk and Hirst.

As participants in the Forum know, SEC rule changes that took effect in September 2011 once again allow shareowners the right to submit and vote on “proxy access proposals” as we had done prior to an underground reinterpretation of SEC rules in 1990 and during a brief window of opportunity after AFSCME v AIG (2006). These proposals give shareowners the right to include director nominees in the company’s proxy materials. Arguably, the most innovative recent models of such proposals have now withstood the SEC “no-action” process and will soon come to a vote at Forest Labs (FRX) on August 15th, Medtronic (MDT) on August 23rd and H&R Block (HRB) on September 13th.

Download a PowerPoint presentation and/or read the paper (pdf) on these important proposals. All three proposals were introduced by long-time activist Kenneth Steiner, with the help of John Chevedden. Design of the proposal came from a team of United States Proxy Exchange (USPX) members, including James McRitchie, Glyn Holton, Brett Davidson, Steve Neiman, Daniel Rudewicz, Steven Towns and others, with helpful input from a variety of their contacts.

…continue reading: Proxy Access: Upcoming Votes at FRX, MDT and HRB

Proxy Access Proposals: Review of 2012 Results and Outlook for 2013

Posted by James Morphy, Sullivan & Cromwell LLP, on Thursday June 28, 2012 at 10:07 am
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Editor’s Note: James Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. This post is based on a Sullivan & Cromwell publication, available here. Work on proxy access from the Program on Corporate Governance includes Private Ordering and the Proxy Access Debate by Bebchuk and Hirst.

Update: An updated version of the memo on which this post is based is available here.

Pursuant to SEC rule changes that took effect in September 2011, shareholders are now permitted to submit and vote on “proxy access proposals” – that is, proposals to give shareholders the right to include director nominees in the company’s proxy materials. Over 20 such shareholder proposals (half of which were binding) were submitted during the 2012 proxy season, of which only eight have come to a vote. Many of the proposals that did not come to a vote were deemed excludable from proxy statements by the staff of the SEC for a variety of technical reasons. We have included on the following page a chart of the terms and outcomes of proxy access proposals submitted to date.

The vote results from this limited pool suggest that shareholders are hesitant to approve proposals that would give a proxy access right to holders of a small number of shares, but are more supportive of proposals that have ownership requirements that are similar to the 3%/3-year threshold that would have applied under the SEC’s now-vacated mandatory proxy access rule.

…continue reading: Proxy Access Proposals: Review of 2012 Results and Outlook for 2013

SEC Not Pursuing Mandatory Proxy Access at this Time

Posted by Andrew R. Brownstein, Wachtell, Lipton, Rosen & Katz, on Wednesday May 16, 2012 at 9:11 am
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Editor’s Note: Andrew R. Brownstein is a partner in the Corporate Department at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Brownstein, Trevor S. Norwitz, and S. Iliana Ongun. Work on proxy access from the Program on Corporate Governance includes Private Ordering and the Proxy Access Debate by Bebchuk and Hirst.

Testifying recently before a House Financial Services subcommittee, SEC Chairman Mary Schapiro stated that, because of capacity constraints, proposing a revised mandatory rule on shareholder access to company proxy materials is “not on the Commission’s immediate agenda.” She noted, however, that the issue is one that the SEC will “continue to look at over time.”

Last summer, the D.C. Circuit Court of Appeals vacated the SEC’s Rule 14a-11, finding that the SEC had “acted arbitrarily and capriciously” in adopting the rule without adequately assessing its economic effects. At the time, the SEC said that it was considering its options but noted that its changes facilitating private ordering in proxy access were not impacted by the Court’s decision.

In the current 2012 proxy season, less than two dozen companies have received proxy access proposals. This modest level of activity is in part explained by activist shareholders waiting to learn whether or not the SEC would be re-promulgating a mandatory rule. Because it is now clear that this will not happen, at least not for the 2013 proxy season, we can expect the focus on private ordering through shareholder proposals to continue and increase.

…continue reading: SEC Not Pursuing Mandatory Proxy Access at this Time

SEC to Allow Shareholders to Submit Proxy Access Proposals for 2012 Season

Posted by James Morphy, Sullivan & Cromwell LLP, on Thursday September 8, 2011 at 12:19 pm
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Editor’s Note: James Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. This post is based on a Sullivan & Cromwell client memorandum. More posts about proxy access, including several from the Program on Corporate Governance, are available here.

The Securities and Exchange Commission has announced that its revisions to the proxy rules to allow shareholders to propose proxy access bylaws and other election or nomination procedures will become effective shortly. The SEC had stayed the effectiveness of these changes to Rule 14a-8 pending the outcome of a judicial review of its mandatory proxy access rule, Rule 14a-11. On July 22, 2011, the U.S. Court of Appeals for the D.C. Circuit vacated Rule 14a-11, but the Rule 14a-8 changes were not litigated. The SEC’s stay order will automatically expire when the court decision is finalized, which is expected to occur on September 13, and the Rule 14a-8 changes will therefore become effective at that time absent further SEC action. The SEC stated that a notice of effective date will be published.

The SEC also confirmed that it will not seek a rehearing of or appeal the decision vacating Rule 14a-11. A statement by the SEC Chairman indicated that she remains committed to facilitating shareholder nominations of directors and that the SEC will continue to review the court decision and the comments received on their proposed rules in order to “determine the best path forward” on mandatory proxy access.

…continue reading: SEC to Allow Shareholders to Submit Proxy Access Proposals for 2012 Season

Implications of the Proxy Access Case

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday August 23, 2011 at 9:15 am
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Editor’s Note: The following post comes to us from David B.H. Martin, co-head of the securities practice at Covington & Burling LLP, and is based on a Covington advisory memorandum by Mr. Martin and Keir D. Gumbs. Other posts related to proxy access, including a number by Lucian Bebchuk and Scott Hirst of the Program on Corporate Governance, are available here.

On July 22, 2011, the U.S. Court of Appeals for the D.C. Circuit issued a long-awaited decision in the case of Business Roundtable and Chamber of Commerce v. Securities and Exchange Commission, No. 10-1305 slip op. (D.C. Cir. Jul. 22, 2011), which vacated Rule 14a-11, the SEC’s shareholder access rule. By vacating the rule, the D.C. Circuit has dealt a significant blow to the SEC’s longstanding efforts to adopt a rule that would require, under certain circumstances, that public companies include in their proxy materials shareholder-proposed nominees to the board of directors. The decision also has import that goes significantly beyond shareholder access, as it will challenge the SEC (and, likely, other agencies) in assessing the economic consequences of future rulemakings. Nevertheless, the court’s decision does not end the shareholder access debate. Under an amendment to the shareholder proposal rule (Rule 14a-8) that was adopted last year at the same time as the shareholder access rule and voluntarily stayed by the SEC pending the outcome of the shareholder access rule litigation, shareholders may yet be able to submit shareholder proposals that seek to establish shareholder access regimes in 2012. The SEC has not yet indicated whether it will lift this stay, but there is no legal reason why it could not do so.

…continue reading: Implications of the Proxy Access Case

What Now For Proxy Access?

Posted by Stanley Keller, Edwards Angell Palmer & Dodge LLP, on Thursday August 18, 2011 at 9:29 am
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Editor’s Note: Stanley Keller is a partner at Edwards Angell Palmer Dodge LLP. Other posts related to proxy access, including a number by Lucian Bebchuk and Scott Hirst of the Program on Corporate Governance, are available here.

With the United States Court of Appeals for the District of Columbia Circuit having struck down Rule 14a-11 in Business Roundtable et al v. Securities and Exchange Commission (No. 10-1305, July 22, 2011), the question is where does proxy access now stand and what can now be expected?

The Court overturned the SEC’s attempt to give shareholders the right under the federal proxy rules to have their director nominees included in management’s proxy materials because of the SEC’s failure to adequately justify Rule 14a-11 on a cost-benefit basis. The SEC has several alternatives which undoubtedly are being considered. It could seek rehearing either by the panel or en banc or appeal the decision to the U.S. Supreme Court, it could amplify its analysis of the economic justification for Rule 14a-11 and readopt the rule, it could modify Rule 14a-11 and seek to justify the modification in a way that it believes will pass judicial scrutiny, or it could do nothing on Rule 14a-11 and let it disappear. Under any of these alternatives, the question is what will the SEC do about the amendment of Rule 14a-8, which offers another route to proxy access through shareholder proposals. The amendment has been stayed pending resolution of the court action challenging Rule 14a-11 and further notice from the SEC. Again, the SEC has several alternatives – it could lift the stay and let the amendment take effect as adopted or it could revisit the Rule 14a-8 amendment. I will not presume to predict what the SEC will do, or worse, tell it what it should do regarding Rule 14a-11. However, I have some observations regarding a path forward.

…continue reading: What Now For Proxy Access?

The Destructive Ambiguity of Federal Proxy Access

Posted by Jill Fisch, University of Pennsylvania, on Wednesday April 27, 2011 at 12:40 pm
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Editor’s Note: Jill Fisch is a Professor of Law at the University of Pennsylvania. The Program on Corporate Governance has issued several papers concerning proxy access, including Private Ordering and the Proxy Access Debate and The Harvard Law School Proxy Access Roundtable.

The paper, The Destructive Ambiguity of Federal Proxy Access, forthcoming in the Emory Law Journal, demonstrates the tension between the federal requirements for the exercise of shareholder nominating rights and the state law principles upon which the SEC purports to ground those rights. The paper unpacks the ambiguities in the SEC’s conception of which shareholders should nominate director candidates. And it highlights the ambiguity resulting from the SEC’s failure to confront, in adopting its rule, the appropriate allocation of power between shareholders and management and the effects of proxy access on that balance.

Under U.S. corporate law, the shareholders elect the board of directors. In most cases, however, those shareholders do not nominate director candidates. Instead, the nominating committee of the board chooses a slate of candidates, and those candidates are submitted to the shareholders for approval. Absent the infrequent phenomenon of an election contest, shareholders do not participate in the nomination process.

…continue reading: The Destructive Ambiguity of Federal Proxy Access

Law Professors Submit Amicus Brief in Proxy Access Case

Posted by John Coates, Harvard Law School, on Monday January 31, 2011 at 9:51 am
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Editor’s Note: This post relates to a brief submitted by 36 law professors, including Professor Coates and Professor Victor Brudney, in the case of Business Roundtable and Chamber Of Commerce v. SEC. Boston College Law Professor Kent Greenfield led the organization of the group, and the brief was written by Jay Eisenhofer, Michael Barry and Ananda Chaudhuri of Grant & Eisenhofer P.A. The amicus brief is available here. The brief relies on the recent Harvard Law Review article by Lucian Bebchuk and Robert Jackson, Jr, “Corporate Political Speech: Who Decides?” which is described on the Forum here.

For seven years, the SEC deliberated whether to give shareholders direct access to the proxy statements mandated by federal law. After the Business Roundtable and others raised doubts about the SEC’s authority to adopt proxy access, Congress considered for nearly a year whether to intervene and mandate it by statute. In the end, Congress simply elected in the Dodd-Frank law to remove any doubt as to the SEC’s authority in the area. At long last, the SEC in September adopted Rule 14a-11, which requires public companies to distribute information about candidates nominated by shareholders that have held 3+% of the voting stock for 3+ years.

…continue reading: Law Professors Submit Amicus Brief in Proxy Access Case

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