Stanley Keller et al. opine on shareholder choice with respect to proxy access:
The debate at the Commission’s open meeting in May 2009, preceding its divided vote to propose proxy access rules, centered on issues of shareholder choice and private ordering. As proposed, the proxy access rules would give shareholders only a right to liberalize proxy access, but no right to make the terms of proxy access more restrictive or to opt-out completely. Many commentators have criticized the asymmetrical, “one way street” aspect of this version of shareholder choice and argued for a broader version that would allow greater freedom to shareholders to vary the SEC prescribed access regime in either direction.
Shareholder choice has a number of possible meanings in the context of proxy access. For purposes of our analysis, we define shareholder choice as a right of shareholders of a company, through bylaw adoption or ratification of a board adopted bylaw, to implement or vary the terms and conditions of proxy access for that company or to choose not to apply a proxy access regime, possibly but not necessarily in favor of an alternative approach, such as a proxy contest reimbursement policy.
They start from the following premise:
We believe there is ... a widespread consensus that the purpose of proxy access is to facilitate through use of a company’s proxy materials the ability of long-term shareholders who have a meaningful ownership stake in the company and no-control purpose to seek election of a limited number of persons they nominate for election as directors in a manner that has no control effect.
I agree that that ought to be the purpose of proxy access. I fear that the intent is to empower state and local and union pension funds, as well as hedge funds, to use proxy access to pursue private rents. (See my essay Shareholder Activism in the Obama Era.)
In any case, they continue with nice, concise summaries of both the pros and cons, before concluding that paternalistic restrictions on shareholder choice are conceptually unsustainable:
... not all shareholders agree on the appropriate structure for proxy access. This is illustrated by, but hardly limited to, the more than 500 hundred comment letters the Commission received in response to its proxy access rule proposal. These comment letters contained a wide diversity of views even on the most fundamental questions, such as size of ownership threshold, minimum holding period, maximum number of access directors and provisions to obviate access from being used as a vehicle for a change of control.
More fundamentally, of course, is whether and why there should be access at every public company. Some shareholders might well prefer an alternative to access in the form of a proxy expense reimbursement policy. Indeed, it is far from implausible that a majority of shareholders of some companies might conclude that access will be too costly, distracting and divisive and therefore vote not to have any access regime. Similarly, some shareholders might view proxy access as undermining the efficacy of majority voting for directors because it promotes election contests to which majority voting typically would not apply. Put another way, what is so compelling about the creation of a proxy access right that should lead the Commission to create a regime which affirmatively excludes the judgment of shareholders as to its structure and application to the companies in which they have invested?
A damn fine question.
Keller's argument finds support in a recent study of shareholder access concluding "that empowering shareholders is not necessarily perceived as a good thing by most shareholders."
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