November 29, 2007

SEC Quickly Adopts Non-Shareholder Access Rule – Then Fireworks Ensue

Perhaps exhausted by the ongoing controversy surrounding the dual shareholder access proposals – 34,000 comment letters! – yesterday’s open Commission meeting failed to produce the type of confrontation that were widely expected. Many felt this Commission meeting could rival a WWF match. But alas, after each Commissioner read their statement, few questions were even asked of the Staff. Here is the SEC’s press release, a Corp Fin Staff statement and the Chairman’s statement.

The vote was 3-1 – with short-termer Commissioner Nazareth dissenting – for the Staff to overturn the AFSCME decision and adopt rules to reiterate the Staff’s long-standing view that companies may exclude access proposals under Rule 14a-8(i)(8). As he had stated before this vote, Chairman Cox noted he would have preferred to do more and promised to revisit this topic next year – but said the SEC needed to clarify the ground rules ahead of this proxy season.

Following up on some thoughts expressed in comment letters, Commissioner Nazareth expressed concerns that this rulemaking might affect the SEC’s other 14a-8 interpretations, such as on majority voting and declassifying boards, but the Staff said they felt comfortable that this would not happen.

The real fireworks began right after the meeting, when all sorts of investor groups, members of Congress, etc. issued statements disapproving the SEC’s rulemaking (eg. CalPERS; CII; RiskMetrics; AFL-CIO; Rep. Frank; Sen. Dodd) – and some approved (eg. Marty Lipton). It’s notable that the opposition is fairly organized on this issue; I can’t imagine something like this happening even five years ago.

In addition, AFSCME submitted proposals to amend the bylaws of Bear Stearns and JP Morgan Chase to create proxy-access procedures (North Carolina’s Treasurer joined in co-filing both proposals and New Jersey’s Division of Investments joined in the Bear Stearns one). And I think we will be seeing more of these proposals submitted to companies soon enough – so expect this issue back in court fairly soon…

[Speaking of fireworks, check out this 1-minute video of the last classic hotel in Vegas being imploded a few weeks ago. The Rat Pack used to do their thing at the Frontier.]

SEC Adopts Rules to Facilitate Shareholder E-Forums: My Ten Cents (Sorta)

As noted in this press release and Corp Fin Staff statement, the SEC also voted to amend the proxy rules to facilitate the use of electronic shareholder forums. The rules enable participation in an electronic shareholder forum, which could potentially constitute a solicitation subject to the current proxy rules, to be exempt from most of the proxy rules if the exemption conditions are satisfied. Here is a statement from Chairman Cox.

What does this mean? The demise of the traditional annual meeting? No more shareholder proposals (the rule itself doesn’t prohibit proposals, but maybe shareholders will find better avenues for their concerns and wishes)? Or will nothing happen? With Web 2.0 in its infancy, I think it’s too soon to tell what the future holds.

Borrowing very liberally from Gary Lutin (who has done a related podcast described below), here is a 10,000 feet level perspective on how e-forums might work effectively:

– The nature of a forum process depends on the issue or agenda that’s defined, and on who’s attracted to participate. If a genuinely open forum is established to address value issues, I think it will attract a fairly broad range of “mainstream” investors interested in how management will make the company successful.

– Rather than a narrow constituency that’s attracted to protest rallies,
corporate managers can – and should – make effective use of the “forum” processes themselves to define issues, rather than simply respond once someone else has defined an issue.

– A genuinely open forum can actually be a very effective means for management to understand and respond to investor concerns, assuming one defines the agenda properly and keeps it on track.

The Future? Independent Shareholder Forums

Quite an interesting person with some great ideas – and who has executed some of these ideas! (that’s the hard part) – Gary Lutin, CEO of Lutin & Company and Founder of, shares some insight into how an independent shareholder forum works in this podcast, which includes discussion on:

– What is
– How do the shareholder forums work?
– Can you describe what happened recently with the forum devoted to Verizon?
– What should be the goals of independent shareholder forums?

– Broc Romanek