September 7, 2011

Proxy Access: SEC Decides Not to Appeal – But Does Open “Private Ordering” Floodgates

“The Twittersphere is alive with the sound of #proxyaccess!” Sung to the tune of “The Sound of Music.” Late yesterday, SEC Chair Mary Schapiro issued a statement that the SEC would neither seek a rehearing of the US Court of Appeals for the District of Columbia Circuit decision nor appeal the decision to the US Supreme Court. So the SEC chose “Door #4” of the options available that I laid out in a blog yesterday.

In her statement, Chair Schapiro reaffirmed her support for the proxy access concept – but she also pledged not to rewrite a proxy access rule anytime in the near future. While this means that “mandatory” proxy access is dead for now, the real story is that the SEC did allow the Rule 14a-8 amendments to go into effect (when the current stay expires next week), which means that the agency will allow access shareholder proposals (“absent further Commission action”) for this proxy season. Private ordering, here we come – a nice boon for corporate lawyers. Here’s the SEC’s statement:

The Securities and Exchange Commission today confirmed that it is not seeking rehearing of the decision by the U.S. Court of Appeals in Washington, D.C. vacating a Commission rule, Rule 14a-11, which would have required companies to include shareholders’ director nominees in company proxy materials in certain circumstances. Nor will the SEC seek Supreme Court review.

Chairman Mary L. Schapiro issued the following statement:

“I firmly believe that providing a meaningful opportunity for shareholders to exercise their right to nominate directors at their companies is in the best interest of investors and our markets. It is a process that helps make boards more accountable for the risks undertaken by the companies they manage. I remain committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards.

At the same time, I want to be sure that we carefully consider and learn from the Court’s objections as we determine the best path forward. I have asked the staff to continue reviewing the decision as well as the comments that we previously received from interested parties.”

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Last year, when the Commission adopted Rule 14a-11, it also adopted amendments to Rule 14a-8, the shareholder proposal rule. Under those amendments, eligible shareholders are permitted to require companies to include shareholder proposals regarding proxy access procedures in company proxy materials. Through this procedure, shareholders and companies have the opportunity to establish proxy access standards on a company-by-company basis — rather than a specified standard like that contained in Rule 14a-11.

Although the amendments to Rule 14a-8 were not challenged in the litigation, the Commission voluntarily stayed the effective date of those amendments at the time it stayed the effective date of Rule 14a-11. The Commission’s stay order provides that the stay of the effective date of the amendments to Rule 14a-8 and related rules will expire without further Commission action when the court’s decision is finalized, which is expected to be September 13. Accordingly, absent further Commission action, Rule 14a-8 will go into effect and a notice of the effective date of the amendments will be published.

The SEC’s Rethink of All Its Rules: The First Step

Yesterday, the SEC issued this press release announcing that it’s seeking public comment on the process it should use to conduct retrospective reviews, such as how often rules should be reviewed, the factors that should be considered, and ways to improve public participation in the rulemaking process. Comments are due by October 6th – and can be submitted via this form.

This forward-looking retrospective is due to President Obama’s memo a few months ago recommending that independent agencies do this rethink (see Vanessa Schoenthaler’s blog for the full background of Obama’s memo). How the SEC will be able to undertake this project given its Dodd-Frank rulemaking burden – not to mention all the resources needed to constantly respond to various Congressional inquiries – is a mystery. But note that this request is just to help the agency develop a plan under which it will then review its rules and regulations – it is not soliciting comment on specific items at this time (although the SEC does have this webpage that solicits comments on specific rules & regs – so there is that opportunity).

To develop this review plan, the timeframe is tight. As noted in this blog, agencies have 120 days to report their findings to the Office of Management and Budget as well as the public – and that clock started ticking about 60 days ago…

Poll: Which Corp Fin Rules Should the SEC Reconsider?

Although it’s early in the process of the SEC rethinking its rules, we can still conduct an anonymous poll about which rules you wish the SEC to review (“XBRL” seems to be popular write-in candidate):

Online Surveys & Market Research

– Broc Romanek