TheCorporateCounsel.net

The Business Roundtable and the US Chamber of Commerce filed their Opening Brief in the case against the SEC over the proxy access rules. The Summary of the Argument in the Brief (found on page 28 of the 61 page brief) is as follows:

The Commission has forced public companies to include the director nominees of a select group of investors in company proxy materials on the basis of shifting, inconsistent, and unsubstantiated assertions that are the hallmark of an agency that has not reached a cohesive understanding of its action, nor “consider[ed] . . . important aspect[s] of the problem.” State Farm, 463 U.S. at 43. The Rules violate the Administrative Procedure Act, the Commission’s statutory duty to consider effects on efficiency, competition, and capital formation, and corporations’ First Amendment rights. They should be vacated.

1. In three recent decisions, this Court has admonished the Commission to “apprise itself . . . of the economic consequences of a proposed regulation.” See, 28 e.g., Chamber of Commerce, 412 F.3d at 144. The Commission failed that responsibility by repeatedly blaming state law for costs it was imposing. It neglected to provide any estimate for the campaign costs that record evidence showed would be the most costly element of the Rules and–after initially predicting that election contests under the Rules would occur 5 times as frequently as traditional proxy contests–shifted ground without explanation and asserted that the contests would occur 25 percent less frequently than proxy contests, even though a central premise of the Rules was that election contests would be initiated “more easily” than supposedly “prohibitively expensive” proxy contests.

2. The Commission also based its assessment of the Rules’ costs on willful ignorance toward the agenda and practices of activist institutional investors, and the conduct of directors and corporations. Commenters warned that special interest investors would use proxy access as leverage to obtain concessions from companies; as a “soap box” to voice disagreements with company policy; and to seek the election of candidates favorable to the special interests of labor unions or the political officials in charge of government pension funds. The Commission failed to even discuss the first two concerns, and its 126-page Adopting Release did not even mention union or government pension plans and their unique and divergent interests. The Commission compounded its error by suggesting that corporations might not oppose the election of access candidates, even though all record evidence was to the contrary, and although elsewhere the Commission relied on anticipated corporate opposition in positing that the Rules would function effectively.

3. The Commission claimed to be empowering shareholders, yet prohibited them from voting to bar or limit proxy access to avoid the costs the Commission admitted might occur. In similar fashion, the Commission abrogated state laws that it claimed to be effectuating.

4. The Commission applied its ill-founded rule to investment companies (e.g., mutual funds) despite conclusive evidence that the asserted need for proxy access at investment companies is even less, and that some of the costs would be higher.

5. By forcing public companies to carry campaign speech of certain activist investors, the Commission violated the First Amendment.

For all of these reasons, Rule 14a-11 and its associated amendments should be vacated.

Something I Never Thought I Would See

In the “things I never thought I would see” department, yesterday the Department of the Treasury put out a press release announcing the exercise of the overallotment option in the GM initial public offering. The press release notes that the exercise of the overallotment option brought $1.8 billion in additional net proceeds for the US taxpayers, bringing the grand total of “taxpayer proceeds” to $13.5 billion and cutting the US stake in the automaker to 33.3 percent. The press release goes on to detail the return on the GM investment and the total amount of TARP funds returned to taxpayers. With the overzealousness of this post-offering press release aside, for me it is great to see the success of GM’s IPO, and hopefully to see a return to business success for this great American institution. [I can’t help but love the new Chevrolet Camaro, having had a 1969 Camaro when I was 16.]

The SEC Staff on M&A

We have posted the transcript of the DealLawyers.com webcast: “The SEC Staff on M&A.”

– Dave Lynn