BNA’s Corporate Counsel Weekly has an interesting report that provides insight into the likely contours of the Securities and Exchange Commission’s (SEC) anticipated new rule on Shareholder Access. The article, SEC Proxy Access Rule Taking Shape ‘Practically Meaningless’ (subscription required), reports on the proceedings of a recent Compliance Week Conference in Washington.
Participants predicted that the SEC would take steps to eliminate shareholders’ ability to make “precatory” non-binding proposals of the sort that currently dominate the SEC’s Rule 14a-8 shareholder proposal regime. In “exchange,” the SEC would expand shareholders’ rights to submit binding shareholder proposals and provide a limited right to nominate board candidates on the management proxy statement.
From the comments quoted in the article, it seems that representatives of corporate management are happy with the proposed “bargain,” while representatives of institutional investors are not. Patrick McGurn of Institutional Shareholder Services is quoted as describing the SEC’s anticipated proxy access rule as “practically meaningless.”
Interestingly, the SEC and corporate counsel seem to favor creating “virtual annual meeting” chat rooms as a venue for shareholders to air greivances and opinions currently channeled through the Rule 14a-8 shareholder proposal process. It is unclear to me why such a process would be appealing to corporations. A legally mandated venue available 24/7 for any shareholder to anonymously express any opinion, view, or gripe seems problematic on a number of levels. This seems to be a system that would defy efforts to impose order and control, which could be being more damaging to a corporation’s interests than the shareholder proposal process which has strict limitations on who can make proposals, how often and on what topics.
Increasing shareholder power to bind management through shareholder proposals while providing shareholder activists an unfettered venue for expression of dissenting viewpoints, in “exchange” for scrapping the essentially toothless Rule 14a-8 precatory proposal regime, may indeed be a case where corporate management should be careful what it wishes for.