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Keith McCullough
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  • Mary Schapiro – A Head-Fake to the Unions?  1 comment
    Jun 8, 2009 11:09 PM

    The promise given was a necessity of the past: the word broken is a necessity of the present.
                - Niccolo Machiavelli

    The SEC has launched a new challenge to those ossified entrenched corporate interests.

    Or has it?

    Bloomberg (20 May, “SEC Weights 1 Percent Threshold For Board Nominations”) quotes Chairman Shapiro as saying “This crisis has led many to raise serious questions and concerns about the accountability and responsiveness of some companies.”  “The most effective means of providing accountability,” she said, is “to ensure that shareholders have a meaningful opportunity” to nominate directors.
    Those who are positive on this proposal say the rule would significantly open up the proxy process and give shareholders greater say in corporate governance.  How could anyone be against such a rule?

    Those who argue against this proposal include the US Chamber of Commerce.  “The U.S. Chamber will continue to vigorously oppose any plan that allows groups to use the proxy process to promote narrow interests,” reads a statement from the Chamber’s Center for Capital Markets Competitiveness. “Politicizing the boardroom would hurt millions of individuals who rely on these investments for retirement.”

    The naysayers believe that, far from promoting the interests of the individual investor, the SEC proposal is designed to enable a pet Democrat special interest group to launch proxy battles at will.  Those who complain that the Obama plan has unfairly placed excessive control – and upside – of the automobile industry in the undeserving hands of the unions, now predict that the unions will have a new ability to harass managements.

    Even among those who favor the concept, there is concern that the rule will not hold up to a legal challenge.  The states have bodies of corporate governance law – some more robust than others – supported by custom and precedent.  On the other hand, there is no federal corporate governance statute.  This means an eventual SEC rule may not have a legal leg to stand on.

    Is Chairman Shapiro serious about pursuing broadened shareholder rights?  If so, she will presumably have to push for an Act of Congress – a lengthy process.  Or is chairman Shapiro going through the cynical exercise of proposing a rule she knows will not stand up, in order to win Brownie points with an obstreperous constituency? 
    Corporate voting procedures are enshrined in state governance statutes, and only certain categories of participants can put forward director nominations.  We are not legal scholars, but we wonder why shareholders who do not have to disclose their investment position – under 5% holders – can fly below the radar, then spring their nomination by surprise.  Will the SEC, in order to make the new rule more even-handed, also require owners of one percent of the shares of a company to file under Section 13?

    Finally, we wonder why the SEC believes it has the right to create a rule at odds with established bodies of state law. 

    Or maybe they don’t even believe they have that right.

    Says SEC Commissioner Kathleen Casey, “The commission has been revisiting and debating the issue of proxy access for decades.”  This proposed rule would be “imposed not only on the country’s largest banks and Wall Street firms, but also on the thousands of other public companies, large and small, across the country.”

    The Commission has been discussing this for “decades”.... This has been a non-starter for generations?  Does Chairman Shapiro think she will have the ability to undermine shareholder protections embedded in the laws of the fifty states, when her predecessors have never been able to get this notion off the ground?

    Commissioner Casey may be onto something – though as a Republican she is presumably against the proposed rule on philosophical grounds.  She scoffs that it is “disingenuous" ... for Chairman Shapiro to predicate the proposed new rule on the current financial crisis.

    For those not clear on the fine points of usage, our dictionary says “Disingenuous" ... is politician-speak for “Bulls**t.


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  • Andrew Shapiro
    , contributor
    Comments (2170) | Send Message
    The SEC's minimalist proxy access rule left small company governance behind.


    See my instablog post at
    25 Aug 2010, 09:17 PM Reply Like
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