This post is by Lucian Bebchuk of Harvard Law School.
I submitted to the SEC yesterday a comment letter on behalf of a bi-partisan group of eighty professors of law, business, economics, or finance in favor of facilitating shareholder director nominations. The submitting professors are affiliated with forty-seven universities around the United States, and they differ in their view on many corporate governance matters. However, they all support the SEC’s “proxy access” proposals to remove impediments to shareholders’ ability to nominate directors and to place proposals regarding nomination and election procedures on the corporate ballot. The submitting professors urge the SEC to adopt a final rule based on the SEC’s current proposals, and to do so without adopting modifications that could dilute the value of the rule to public investors.
A copy of the comment letter filed with the SEC is available here. Below is the text of the main part of the comment letter followed by the list of the eighty professors.
TEXT OF MAIN PART OF COMMENT LETTER:
This comment letter is submitted on behalf of a bi-partisan group of eighty professors of law, business, economics, or finance whose names appear below (the “Submitting Professors”). The Submitting Professors are affiliated with forty-seven universities around the United States. All of the Submitting Professors have research or professional interests relating to how publicly traded firms are run and how their affairs are governed by corporate and securities laws. The Submitting Professors welcome the opportunity to provide comments to the Securities and Exchange Commission (the “SEC”) on its proposed rule Facilitating Shareholder Director Nominations (the “Proposed Rule”).
There is substantial variance among the views of the Submitting Professors on many corporate governance matters. However, all of the Submitting Professors support the SEC’s proposals to remove impediments to the exercise of shareholders’ rights to nominate and elect directors and to enable shareholders to place proposals regarding nomination and election procedures on the corporate ballot. All of the Submitting Professors urge the SEC to adopt a final rule based on the SEC’s current proposals, and to do so without adopting modifications that could dilute the value of the rule to public investors. While all of the Submitting Professors share the views expressed in this paragraph, each individual professor may not endorse each and every statement below.
The ability of shareholders to replace directors is supposed to play a key role in the governance structure of public companies. However, shareholders seeking to replace directors face considerable impediments. One significant impediment to replacing directors is incumbents’ control of the company’s proxy card – the corporate ballot sent by the company at its expense to all shareholders. We believe that providing shareholders with rights to place director candidates on the company’s proxy card, as the SEC proposes doing, would improve director accountability.
Providing shareholders with minimum rights of access to the company’s proxy card, and allowing companies to provide shareholders with additional rights but not to take away the set minimum, is consistent with the long-standing and established role of the proxy rules (and the securities laws in general) and the division of labor between them and state corporate law. The proxy rules (and the securities laws in general) have long provided mandatory arrangements establishing a minimum level of protection for public investors, with companies being free to add additional protections but not to reduce investors’ protections below the established minimum.
We also believe that incumbent directors should not have an effective monopoly power to set the corporate arrangements governing their own election, and that it is therefore desirable to facilitate shareholders’ ability to amend – within the limits set by state and federal law – corporate arrangements governing the nomination and election of directors. Accordingly, we support the SEC’s proposal to amend Rule 14a-11 to enable shareholders to place proposals related to such arrangements on the corporate ballot.
In designing the final rule, the SEC should be careful to avoid eligibility or procedural requirements that would undermine or unnecessarily detract from the Proposed Rule’s value for investors. In evaluating these requirements, it is important to keep in mind that, no matter how moderate eligibility or procedural requirements may be, shareholder nominees must still meet the demanding test of getting elected before they can join the board. A shareholder nominee will join the board only if the nominee obtains more votes than the incumbents’ candidate in an election in which incumbents, but not the shareholder nominee or the nominator, may spend significant amounts of the company’s resources on campaign expenses.
In evaluating eligibility and procedural requirements, the SEC should also keep in mind that many institutional investors lack incentives to invest actively in seeking governance benefits that would be shared by their fellow shareholders. Accordingly, the final design of the rule should avoid imposing any unnecessary hurdles or costs on shareholders organizing or joining a nominating group.
The SEC was authorized by Congress to prescribe rules to regulate the use of proxies “as necessary or appropriate in the public interest or for the protection of investors.” Adopting the SEC’s proposals, while ensuring that the final rule does not impose eligibility or procedural requirements that would dilute its value for investors, will advance the public interest and the protection of investors.
LIST OF THE EIGHTY SUBMITTING PROFESSORS:
Michael Adler
Professor of Finance & Economics
Columbia University Business School
Robert Ashford
Professor of Law
Syracuse University College of Law
Steven Balsam
Professor of Accounting
Fox School of Business and Management
Temple University
Lucian A. Bebchuk
William J. Friedman and Alicia Townsend
Friedman Professor of Law,
Economics, and Finance
Director of the Program on Corporate Governance
Harvard Law School
Lisa Bernstein
Wilson Dickenson Professor of Law
The University of Chicago
Sanjai Bhagat
Professor of Finance
Director, Leeds Ph.D. Program
Founding Director, Burridge Center for Valuation
Leeds School of Business
University of Colorado
Leonard Bierman
Professor
Mays Business School
Texas A&M University
Bernard S. Black
Professor of Law
The University of Texas Law School
Michael Bradley
F.M. Kirby Professor of Investment Banking
Fuqua School of Business
Professor of Law
Duke University
J. Robert Brown, Jr.
Professor
University of Denver Sturm College of Law
Lawrence D. Brown
J. Mack Robinson Distinguished Professor
of Accountancy
Georgia State University School of Accountancy
Richard Buxbaum
J.D. Program and Jackson H. Ralston Professor
of International Law
Boalt Hall
University of California at Berkeley
David C. Cicero
Assistant Professor of Finance
Lerner College of Business and Economics University of Delaware
Jim Cox
Brainerd Currie Professor of Law
Duke Law School
Martijn Cremers
Associate Professor of Finance
Yale School of Management
Lawrence A. Cunningham
Henry St. George Tucker III Research Professor
George Washington University
Lynne L. Dallas
Professor of Law
University of San Diego School of Law
Steven M. Davidoff
Associate Professor of Law
University of Connecticut School of Law
George W. Dent
Schott-van den Eynden Professor
Case Western Reserve University School of Law
B. Espen Eckbo
Tuck Centennial Chair in Finance
Founder, Lindenauer Center for
Corporate Governance
Tuck School of Business
Dartmouth College
Aaron Edlin
Richard Jennings Professor of Law and Professor of Economics
University of California at Berkeley
Franklin R. Edwards
Arthur F. Burns Professor of Free and
Competitive Enterprise
Columbia Business School
Lisa M. Fairfax
Leroy Sorenson Merrifield Research
Professor of Law
The George Washington University Law School
Olubunmi Faleye
Associate Professor of Finance
Lloyd Mullin Research Fellow
Northeastern University
James Fanto
Professor of Law
Brooklyn Law School
Fabrizio Ferri
Assistant Professor
Harvard Business School
Jill E. Fisch
Perry Golkin Professor of Law
University of Pennsylvania Law School
Tamar Frankel
Professor of Law
Michaels Faculty Research Scholar
Boston University Law School
Jesse Fried
Professor of Law
Harvard Law School
Nicholas L. Georgakopoulos
H.R. Woodard Professor of Law
Indiana University School of Law – Indianapolis
Ronald J. Gilson
Meyers Professor of Law and Business
Stanford Law School
Henry Hansmann
Augustus E. Lines Professor of Law
Yale Law School
Jay C. Hartzell
Associate Professor of Finance
Allied Bancshares Centennial Fellow
McCombs School of Business
The University of Texas at Austin
Claire Hill
Professor and Solly Robins Distinguished
Research Fellow
University of Minnesota Law School
Michael C. Jensen
Jesse Isidor Straus Professor of Business Administration Emeritus
Harvard Business School
Kose John
Charles William Gerstenberg Professor of
Banking and Finance
Leonard M. Stern School of Business
New York University
Ehud Kamar
Professor of Law
Gould School of Law
University of Southern California
Naveen Khanna
AJ Pasant Endowed Chair Professor of Finance
Broad College of Business
Michigan State University
Vikramaditya S. Khanna
Professor of Law
University of Michigan Law School
Bruce Kogut
Sanford C. Bernstein & Co. Professor of Leadership and Ethics
Columbia Business School
Jonathan GS Koppell
Associate Professor of Politics and Management
Yale School of Management
Donald C. Langevoort
Thomas Aquinas Reynolds Professor of Law
Georgetown University Law Center
Michael E. Levine
Distinguished Research Scholar
Senior Lecturer
New York University School of Law
Ross Levine
James and Merryl Tisch Professor of Economics
Director, William R. Rhodes Center for International Economics and Finance
Brown University
Karl V. Lins
R. Thayne Robson Faculty Fellow
Professor of Finance
David Eccles School of Business
University of Utah
Katherine Litvak
Professor of Law
Northwestern University School of Law
Dennis E. Logue
Steven Roth Professor Emeritus
Tuck School
Dartmouth College
Stephen Marks
Professor of Law
Boston University School of Law
Ronald W. Masulis
Frank K. Houston Professor of Finance
Professor of Law
Vanderbilt University
Todd Milbourn
Professor of Finance
Finance Area Coordinator
Olin Business School
Washington University
Dale Oesterle
J. Gilbert Reese Chair in Contract Law
Moritz School of Law
Ohio State University
Richard W. Painter
S. Walter Richey Professor of Corporate Law
University of Minnesota Law School
Arthur R. Pinto
Professor of Law
Co-Director Dennis J. Block Center for the Study of International Business Law
Brooklyn Law School
Katharina Pistor
Michael I. Sovern Professor of Law
Columbia Law School
Robert A. Ragazzo
University of Houston Law
Foundation Professor of Law
University of Houston Law Center
Jay R. Ritter
Cordell Professor of Finance
University of Florida
Len Rosenthal
Professor of Finance
Bentley University
Ronald D. Rotunda
Doy and Dee Henley Chair and Distinguished Professor of Jurisprudence
Chapman University School of Law
Malcolm S. Salter
James J. Hill Professor, Emeritus
Harvard University
Graduate School of Business Administration
Antoinette Schoar
Michael Koerner ’49 Professor of
Entrepreneurial Finance
MIT Sloan School of Management
Kenneth Scott
Ralph M. Parsons Professor of
Law and Business, Emeritus
Stanford Law School
Robert J. Shiller
Arthur M. Okun Professor of Economics
Yale University
Stanley Siegel
Professor of Law
New York University School of Law
D. Gordon Smith
Associate Dean for Faculty and Curriculum
Glen L. Farr Professor of Law
J. Reuben Clark Law School
Brigham Young University
Jeffrey Sonnenfeld
Lester Crown Professor of Management Practice Yale School of Management
Marc I. Steinberg
Senior Associate Dean for Research
Rupert and Lillian Radford Professor of Law
SMU Dedman School of Law
Shyam Sunder
James L. Frank Professor of Accounting,
Economics and Finance
Yale School of Management
Eric Talley
Professor of Law
Faculty Co-Director, Berkeley Center for Law, Business and the Economy
Boalt Hall
University of California at Berkeley
Anjan Thakor
John E. Simon Professor of Finance
Senior Associate Dean-Programs
Olin School of Business
Washington University
Samuel C. Thompson, Jr.
Professor of Law
Arthur Weiss Distinguished Faculty Scholar
Director, Center for the Study of
Mergers and Acquisitions
Dickinson School of Law
The Pennsylvania State University
Belén Villalonga
Associate Professor
Harvard Business School
William K.S. Wang
Professor of Law
University of California, Hastings
Mark Weinstein
Associate Professor of Finance and
Business Economics
Marshall School of Business
Associate Professor of Business and Law
Gould School of Law
University of Southern California
Michael S. Weisbach
Professor and Ralph W. Kurtz Chair in Finance
The Ohio State University
Elliott J. Weiss
Charles E. Ares Professor of Law Emeritus
University of Arizona
Ivo Welch
CV Starr Professor of Economics (Finance)
Brown University
Lawrence J. White
Professor of Economics
Stern School of Business
New York University
Charles K. Whitehead
Associate Professor of Law
Cornell University Law School
Luigi Zingales
Robert C. McCormack Professor of
Entrepreneurship and Finance
Booth School of Business
The University of Chicago
Eric Zitzewitz
Associate Professor of Economics
Dartmouth College
One Comment
I believe the final sentence of the fifth paragraph of the “TEXT OF MAIN PART OF COMMENT LETTER” should refer to Rule 14a-8 instead of proposed Rule 14a-11. As you know, Rule 14a-8 is the existing rule, which, if amended as proposed by the SEC, would “enable shareholders to place proposals related to [corporate arrangements governing the nomination and election of directors] on the corporate ballot.” Rule 14a-11 is a rule that has been proposed by the SEC to create a mandatory proxy access process with specific terms and conditions at each company registered under the Exchange Act.
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