SEC Re-opens Comment Period for Proxy Access Proposal

December 22, 2009

The Securities and Exchange Commission (the "SEC") recently announced that it is re-opening the comment period for its June 2009 proposal regarding shareholder access to company proxy materials for director nominations (also known as "proxy access").[1]  The SEC’s proposed rules, if adopted, would establish a federal proxy access right and permit proxy access shareholder proposals in company proxy materials.[2] 

The SEC is re-opening the comment period to allow interested persons to comment on additional data and analyses that were submitted on or after the close of the original comment period.  In particular, the SEC is seeking comments on the four reports summarized below.

• Report on Effects of Proposed SEC Rule 14a-11 on Efficiency, Competitiveness and Capital Formation, in Support of Comments by Business Roundtable, NERA Economic Consulting (submitted on August 17, 2009 by the Business Roundtable, available here).  In this report, the authors address the costs of the SEC’s proposed proxy access rules in terms of efficiency, competitiveness and capital formation.  The report concludes that the proposed rules would impose substantial costs on public companies, impair their efficiency and competitiveness, and further undermine the attractiveness of U.S. equity markets, while providing only modest savings for shareholders engaging in proxy contests.
• Why Did Some Banks Perform Better During the Credit Crisis?  A Cross-Country Study of the Impact of Governance and Regulation, Andrea Beltratti and René M. Stulz (submitted on September 11, 2009 by the Business Roundtable, available here).   The authors of this report analyze whether individual bank performance during the credit crisis was related to various factors, including bank-level governance, country-level governance, country-level regulation, and bank balance sheet and profitability characteristics before the crisis.  Among other things, the authors conclude that "banks with more shareholder-friendly boards performed worse during the crisis." 
• The Limits of Private Ordering:  Restrictions on Shareholders’ Ability to Initiate Governance Change and Distortions of the Shareholder Voting Process, The Corporate Library (submitted on November 18, 2009 by the Shareowner Education Network and the Council of Institutional Investors, available here).  This report seeks to challenge the  suggestion of some commenters on the SEC’s proxy access proposal that "the SEC should facilitate private ordering to permit shareholders at each individual company to decide whether proxy access is desirable and to establish its precise contours."  The report concludes that private ordering with respect to proxy access would be inadequate because, among other things, many companies maintain multiple classes of stock with disparate voting rights, place limitations on shareholders’ ability to amend company bylaws and have supermajority voting provisions applicable to bylaw amendments. 
• Share Ownership and Holding Period Patterns in Form 13F Data (submitted on November 24, 2009 by the Division of Risk, Strategy, and Financial Innovation, available here).  This memorandum updates an earlier analysis performed by the Office of Economic Analysis, which is now part of the Division of Risk, Strategy, and Financial Innovation, in connection with the 2003 proxy access rule proposal.  The memorandum provides an analysis of the percentage of public companies with shareholders meeting various hypothetical proxy access ownership thresholds and holding periods.  The memorandum’s analysis uses data derived from Form 13F filings reporting the holdings of institutional investment managers and therefore does not reflect the potential formation of investor groups aggregating share ownership to qualify for proxy access.

Comments on the data and analyses in these reports are due January 19, 2010. According to the SEC’s press release, the SEC staff continues to expect to make a final recommendation to the Commission regarding the proxy access proposal in early 2010.[3]

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or any of the following in the firm’s Washington, D.C. office:

John F. Olson (202-955-8522, [email protected])
Brian J. Lane (202-887-3646, [email protected]) 
Ronald O. Mueller (202-955-8671, [email protected]) 
Amy L. Goodman (202-955-8653, [email protected])
Gillian McPhee (202-955-8230, [email protected])
Elizabeth Ising (202-955-8287, [email protected])

© 2009 Gibson, Dunn & Crutcher LLP

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