While recent developments have focused attention on the new rule enabling proxy access (Rule 14a-11; available here) and its impact on the 2011 proxy season, the Securities and Exchange Commission (SEC) will also be busy over coming months exploring a major overhaul of the proxy system based on reform concepts presented in their Concept Release on the U.S. Proxy System (“Proxy Mechanics;” available here). Comments on the latter, if you haven’t already submitted them to the Commission, are due on or before October 20, 2010 (SEC File Number S7-14-10).

It was an indication of the Commission’s priorities that it moved to issue new rules on proxy access, which will become effective on November 15, 2010, before completing its review of long-standing, and arguably far more pressing, issues addressed in the concept release. Commissioner Kathleen L. Casey noted in her remarks on the new proxy access rule (Aug. 25, 2010): “a primary, if unstated, objective of this rule is to put the issue of proxy access behind the Commission once and for all…paradoxically, the rule that the Commission” adopted “virtually guarantees that the Commission will be forced to deal with this issue for years to come.” Indeed, there is some uncertainty about whether the eligibility and disclosure requirements under Rule 14a-11 could change as a result of decisions arising out of the Commission’s review of proxy mechanics. Some of the reform concepts and issues raised in the concept release on the U.S. proxy system go directly to questions of eligibility and disclosure requirements under Rule 14a-11. For example, the concept release not only raised the issue of a procedural definition of “empty voting” (e.g., should “voting and investment power” calculations include equity and/or credit derivative-based hedging or short positions), but also the possible prohibition of “empty voting” in situations where a shareholder has a “negative economic interest.”

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