TheCorporateCounsel.net

The SEC’s proposal to rescind Rule 14a-8 prompted a swift response from the Council of Institutional Investors (CII). On the same day that the proposal was issued, CII Executive Director Glenn Davis issued a statement, bluntly noting:

Let this moment settle in: The SEC, created for the purpose of protecting investors in the aftermath of the Crash of 1929, today proposed to rescind a World War II-era rule protecting shareholders’ ability to suggest ideas to improve the companies they own.

Yes, shareholder proposals can be a source of embarrassment when they reveal a disconnect between shareholders’ and managers’ understandings of what matters to long-term performance; and sometimes they trigger compromise before a vote takes place. That is a feature of strong capital markets, not a basis for a government agency to swat a fly with a sledgehammer.
 
The proposed rescission is a solution in search of a problem. Nearly all shareholder proposals are non-binding, which means they merely give corporate directors data to make better-informed decisions. Company costs related to shareholder proposals trace largely to self-imposed expenses such as pursuing legal cover to exclude proposals from ballots or funding campaigns to get out the “against” votes. Most publicly traded companies face zero shareholder proposals in a given year. 
 
Could Rule 14a-8 be improved? Sure. But the SEC proposed rescinding the rule in its entirety, with fingers crossed that state legislators and corporate directors will develop a patchwork of new rules resulting in something better. Spoiler alert: That patchwork will launch a new race to the bottom in state corporate law and result in a dramatic reduction in shareholders who qualify as proponents, notwithstanding smaller investors’ history of putting forward many of the most highly supported proposals.
 
CII will speak publicly and repeatedly to defend Rule 14a-8. We encourage all market participants to do their part in this effort. It’s not about whether you agree or disagree with the substance of particular shareholder proposals. It’s about preserving broad shareholder expression as a vital part of robust capital markets.

Meanwhile, the comments are already starting to pour in on the SEC’s proposal. Trillium Asset Management, LLC submitted a comment letter this week requesting that the Commission extend the public comment period from 60 days to 120 days, while asking the Commission to convene a public roundtable “to gather the views of investors before proceeding further.” These requests were subsequently echoed in a comment letter submitted by the Committee on Mission Responsibility Through Investment, part of Presbyterian Life & Witness, an agency of the General Assembly of the Presbyterian Church.

– Dave Lynn