October 3, 2007

Shareholder Access: What Now?

Yesterday was the deadline for comments on the two competing shareholder access proposals, and as might be expected they both pulled in lots of comments. If anything was to be decided on the sheer number of comment letters, then the proposing release that would give 5% shareholders the ability to submit binding access bylaw amendments would be the hands down winner, with over 15,000 comment letters so far. Of those over 15,000 letters, a little more than 14,700 were designated by the SEC as “form” letters. The proposing release seeking to codify the SEC Staff’s interpretation of Rule 14a-8(i)(8) only garnered just north of 7,400 comments (of which over 7,370 were designated as “form” letters). True to form, while the investor community and individuals belonging to organizations with an interest in this matter turned out in force, there does not appear to be a whole lot of input from the issuer side on these proposals. While these comment numbers are nothing to sneeze at, they still don’t touch – when viewing the two access releases separately – the well over 20,000 letters commenting on the 2006 executive compensation disclosure proposals.

Now that the SEC Staff has all of these comments to sift through, it remains to be seen which way the SEC will ultimately go and when. In order to have proposals in place for the upcoming proxy season as Chairman Cox told the Senate Banking Committee he would at the end of July, it would seem that an adopting release needs to be on the SEC’s calendar in November, when many of the other Corp Fin proposals from earlier this year are expected to be considered. As noted in the RiskMetrics Risk & Governance Group blog, former Commissioner Campos said at a September CII conference that he doubted a replacement would be named in time to participate in shareholder access deliberations before next proxy season. Campos also indicated that he thought it was unlikely that Chairman Cox would push for a final decision on the issue without a full complement of commissioners.

At a House Committee on Financial Services hearing last week, investor and business representatives squared off on the shareholder access proposals. The SEC did not participate in the hearing. Reminiscent of the debate that ensued when shareholder access was last proposed in 2003, the two sides can seemingly find no middle ground. The investor side would rather see neither proposal move forward, and instead would like to submit access proposals without any restrictions. John Castellani, president of the Business Roundtable, raised the specter of “fractured boards representing special interests or small groups of shareholders” if the SEC adopts some form of shareholder access.

Adding to the uncertainty about the ultimate outcome of shareholder access is the outstanding warning from Senator Christopher Dodd (D-CT), who said that he will consider legislation to resolve the question of proxy access if the SEC doesn’t adopt access rules.

Farewell to Commissioner Nazareth

The SEC announced that Commissioner Annette Nazareth intends to step down. Commissioner Nazareth has indicated to the President that she does not wish to be re-nominated, and her term expired earlier this summer. No departure date has been set.

Commissioner Nazareth has been at the SEC for nine years, first as Director of the Division of Market Regulation and then as a commissioner. It is rare these days to see someone appointed to a commissioner slot from the Staff, and I believe that Nazareth’s experience on the Staff always contributed to her outstanding work as a commissioner. I really enjoyed working with Commissioner Nazareth and her excellent Staff – her departure is a big loss for the SEC.

ACAP Gets Off the Ground

Yesterday, Treasury Secretary Paulson announced the members of the Treasury Advisory Committee on the Auditing Profession. The date of the Committee’s first public meeting is set for October 15th. As Broc noted in this blog from back in May, the Committee – headed by former SEC Chairman Arthur Levitt and former SEC Chief Accountant Donald Nicolaisen – is tasked with examining issues such as audit firm concentration, how to strengthen the accounting industry’s financial soundness and how to enhance the ability to attract and retain qualified personnel. More information is available at the Committee’s website.

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– Dave Lynn