The US Chamber of Commerce announced yesterday that if the SEC adopts the pending shareholder access proposal, the Chamber will bring suit challenging the SEC's authority so to do. I am no fan of the shareholder access proposal. (See my TCS column Does the SEC Know When Enough Is Enough? and the archive of my blog posts.) I submitted comments to the SEC opposing the proposal. Finally, I argued in my article The Short Life and Resurrection of SEC Rule 19c-4 that the SEC has very limited authority over corporate governance. Having said all that, however, I think the Chamber's suit likely would fail. Such a suit necessarily would focus on whether the SEC had authority to adopt the rule, not on whether the rule made good policy sense. As to the authority question, I have concluded that the SEC in fact has the requisite authority (see my post Donaldson tells Congress action on shareholder access to proxy coming soon).
The key point is that the SEC's authority under Section 14(a) is not limited to disclosure. The SEC has authority to do more than just mandate "that certain material appear in a proxy" statement. Business Roundtable v. SEC, 905 F.2d 406 (DC Cir. 1990), indicated (albeit in dicta) that the SEC's powers under 14(a) include sufficient control over the process of shareholder voting to ensure the Congressional goal of "fair corporate suffrage." I discussed the meaning of that phrase from Section 14(a)'s legislative history in my article The Short Life and Resurrection of SEC Rule 19c-4, where I concluded that:
The proper interpretation of “fair corporate suffrage” now becomes evident. In using that term, Congress did not mean to address the substantive question of how many votes per share to which a stockholder is entitled. Instead, as the D.C. Circuit recognized, Congress was talking about an entirely different concern: the need for full disclosure and fair solicitation procedures. (610)
I further concluded that the Exchange Act gave the SEC power to ensure that shareholders are able "to make effective use of whatever voting rights they possess by virtue of state law." In dicta, the Business Roundtable opinion likewise concludes that the SEC has authority to adopt rules creating "a control over management’s power to set the voting agenda, or, slightly more broadly, voting procedures.” (905 F.2d at 411.) Shareholder access to the proxy statement to nominate directors presumably likewise constitutes "a control over management’s power to set the voting agenda."
