Christopher Bruner nails it:
In its overview of the amendments (the opening paragraph, in fact), the Commission notes that when it proposed proxy access last year, it “recognized at that time that the financial crisis … heightened the serious concerns of many shareholders about the accountability and responsiveness of some companies and boards of directors to shareholder interests,” raising “questions about whether boards … were appropriately focused on shareholder interests, and whether boards need to be more accountable for their decisions regarding issues such as compensation structures and risk management” (at 7). Proxy access, it is suggested, “will significantly enhance the confidence of shareholders who link the recent financial crisis to a lack of responsiveness of some boards to shareholder interests” (p. 10).
Offering up proxy access and other forms of shareholder empowerment as a response to corporate governance problems precipitating the financial crisis is absurd. To the extent that excessive risk-taking led to the crisis, reforms like proxy access – aiming to empower the corporate constituency whose incentives are most skewed toward greater risk – simply don’t add up. As I discuss in a recent paper examining U.S. and U.K. corporate governance crisis responses, the fact that the far greater governance power of U.K. shareholders appears to have done little to mitigate the (very similar) crisis over there ought to give pause to those suggesting that augmenting shareholder powers will prevent future crises over here. Moreover, even if shareholder empowerment made sense in financial firms, it remains unclear why this would justify altering the balance of power between boards and shareholders across the universe of public companies. Perhaps recognizing the weakness of the crisis rationale, the SEC places it in the shareholders’ mouths by styling it a matter of investor confidence. But this doesn’t alter the flaws in the argument itself.
