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E-MailLucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School and author of The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise. Scott Hirst is Executive Director of the Corporate Governance Program and co-author with Professor Bebchuk of Private Ordering and the Proxy Access Debate. Comments in support of the SEC’s proxy access rule submitted by one or both of them are available here, here and here.
The Securities and Exchange Commission today voted to approve a rule that provides shareholder with the right to place director candidates on the corporate ballot in certain circumstances.
The adoption of proxy access is a welcome and long overdue development. In our view, the case for providing shareholders with access to the corporate ballot is compelling. Last fall, one of us submitted on behalf of a bi-partisan group of eighty professors of law, business, economics, or finance a comment letter in support of adopting a proxy access proposal. The breadth of this group reflected the widespread support among academics for removing impediments to shareholders’ ability to nominate and elect directors. The case for the proposed rule is supported by the significant body of empirical work (described in another comment letter submitted by one of us) indicating that reducing incumbent directors’ insulation from removal is associated with improved value for shareholders.
Although the case for proxy access is strong, corporate managements have long strongly resisted such access. The importance of the step taken today should therefore not be understated. We applaud both the SEC for adopting a proxy access rule and Congress for recently affirming the SEC’s authority to do so.
The details of the proxy access rule adopted today mean that its immediate consequences are likely to be modest. Under the rule, a shareholder (or shareholder group) would need to hold more than 3% of the company’s shares for more than 3 years to be eligible to use the rule to place director candidates on the corporate ballot. These eligibility requirements, together with the rule’s procedural requirements, will place substantial limits on its use. (To illustrate, according to data put together by CalPERS, the 10 largest public pension funds together hold less than 2.5 percent at Bank of America, Microsoft, I.B.M. and Exxon Mobil.) To the extent that these limits prove excessive, we hope that the SEC will reconsider the thresholds set today.
In a related and welcome development, the SEC also voted today to amend Rule 14a-8 to enable shareholders to include on the corporate ballot proposals related to election and nomination procedures. Limitations on shareholders’ ability to bring such proposals, which have now been repealed, were never justified. Incumbent directors should not have excessive power to set the arrangements governing their own election. We hope that, over time, shareholders will learn to make beneficial use of their new ability to initiate amendments to nomination and election procedures.
