Print
E-MailThis post is from John F. Olson of Gibson, Dunn & Crutcher LLP.
While I have a lot of admiration for SEC Commissioner Annette Nazareth, and certainly respect her views on proxy access, I thought it rather unfair of other Harvard Law blogsters to give so much attention to her statement about the SEC’s supposed “no access” decision at its November 28 meeting–while paying little or no attention to the thoughtful statement of SEC Chairman Christopher Cox on the subject.
It’s a bit sad when we academics surrender to the sloppy sloganeering of interest groups and the press on an issue such as this, and don’t look at what action was actually taken and the reasons behind it. While Cox might have done nothing on November 28, as some advocates strongly urged, the principled position he did take–and the lawyerly analysis he presented–was no surprise. Cox had said numerous times that the course the SEC took was what he thought was the best thing to do in the circumstances, and his reasoning deserves consideration.
Importantly, Cox made clear that he personally supports proxy access, and plans to try again to come up with an approach that will garner majority Commission support next Spring, when presumably two new Democratic Commissioners will be in place. If one supports meaningful proxy access as a matter of policy, then the villain in this little drama is not Chris Cox but former Commissioner Roel Campos who, although supporting proxy access verbally, left the stage hastily before the crucial vote, thus leaving Chairman Cox unable to muster a Commission majority for any action other than the one taken on November 28.
2 Comments
Cox didn’t do “nothing” on Nov. 28th, he voted to rescind an extremely important shareholder right.
If Cox really believed that Rule 14a-8(i)(3) would permit an “end run” around the Commission’s disclosure requirements applicable to contested elections, he could have proposed amendments to allow exclusion of proxy access proposals that do not satisfy those Schedule 14A requirements. Doing so would allay his concerns about the adequacy of disclosure in a proxy access regime while preserving shareholders’ rights under state law to alter the procedures by which directors are nominated and elected.
More importantly, I believe Cox demonstrated bad faith in his testimony before the Senate Banking Committee on Nov. 14 and in his other statements. He led us to believe the AFSCME v AIG decision was in conflict with the more recent Supreme Court decision in the case of Long Island Care v Coke when it it not.
Here’s part of Cox’s rationale. “This uncertainty is compounded by a recent decision of the U.S. Supreme Court, which creates doubt about the state of affairs even in the Second Circuit… Justice Breyer’s opinion for the unanimous Court held that the agency’s interpretation of its own regulations is controlling unless plainly erroneous. As a result of this decision, it is more likely today that even a Second Circuit court would uphold the agency’s longstanding interpretation of our proxy access rule. In this escalating state of confusion, the only rule across America at the moment is every litigant for himself.”
He wanted the ‘legal uncertainty’ created by these two apparently contradictory court decisions cleared up before the 2008 proxy season.
In Long Island Care, the Supreme Court reversed a decision by the Second Circuit and concluded that the Department of Labor was entitled to deference, since the agency had arrived at its rule through public notice and comment. In the words of the Court, “That the DOL may have interpreted the two regulations differently at different times in their history is not a ground for disregarding the present interpretation, which the DOL reached after proposing a different interpretation through notice-and-comment rulemaking.”
By contrast, in the AFSCME case, the SEC adopted amendments to Rule 14a-8 through notice and comment in 1976, and in a Statement accompanying the adopting release, announced an interpretation that would allow for shareholder access proposals.
According to the AFSCME ruling, the 1976 Statement clearly reflects the view that the election exclusion is limited to shareholder proposals dealing with identified board seats in an upcoming election not shareholder proposals that would institute procedures making such election contests more likely in future elections.
As the AFSCME decision notes, SEC staff, changed its interpretation over time, not through notice and comment as was the case in Long Island Care, but inconsistently through no-action letters, without “reasoned analysis.” The Second Circuit found that, “The SEC fails to so much as acknowledge a changed position, let alone offer a reasoned analysis of the change.”
Chairman Cox created the impression that Long Island Care resulted in confusion. However, if Long Island Care had any bearing at all on AFSCME, it was that deference must be given to the SEC’s original interpretation and the 1976 Statement that supported the rule. Long Island Care didn’t create confusion, it resulted greater certainty.
Does Cox really believe Long Island Care conflicts with AFSCME or led to created greater confusion? If so, how? If the two decisions are truly in conflict why didn’t the Business Roundtable or other opponents, who can afford the highest paid attorneys in the land, make that argument that during the public comment period?
Cox clearly appeared to rely on the confusion argument in convincing the public of the need to move forward now. Is it mere irony that if the rule adoption goes unchallenged, the SEC’s new rule might be protected by the very Long Island Care decision that Cox said created uncertainty? Now, if the no access rule goes to the Supreme Court, the SEC can point to the fact that, like DOL in Long Island Care, the SEC went through public notice and comment and is due the same deference.
Part two
The truth of the matter is that Chairman Cox refused to make changes to the draft rule (around the 5% and the disclosure provisions) that would have made it palatable to investors in July — the very changes he then said at the November open meeting he wanted to make.
Roel Campos had real family reasons for leaving, and felt there was no point in putting it off just to vote “no” on an unacceptable proposal.
The reality is that Cox has always had the power to do the right thing — to put out a good rule with the support of Roel Campos and Annette Nazareth, or to do nothing once Campos had left. These choices were Cox’s to make. To blame Campos is incredulous.