Made by Edward Knight in today's WSJ:
... shareholders and companies are spending significant amounts of money to manage the legal process involving proxy proposals. This cost is one that even shareholders would agree often will not add any long-term value to the company.
The low success rate of shareholder proposals is in part due to the low, nearly nonexistent barriers to their submission. Since 1998, the SEC's proxy rules have required that a shareholder interested in getting a proposal into the proxy own just $2,000 of the company's shares for at least one year. ...
Corporations are not meant to be perfect democracies, but even in democracies we require citizens to gather a threshold number of signatures to qualify an initiative for a state or municipal ballot. That threshold is markedly lower for publicly traded companies in the U.S., and the ultimate costs are high for the owners of those companies. Shareholders of U.K.-registered companies face a more reasonable test: They must be supported by at least 5% of eligible voting shareholders to submit a proposal, or represent a group of at least 100 shareholders whose collective stake is valued at a minimum of £10,000, or approximately $16,660.
I'd support such a proposal, even though I think it doesn;t go far enough. As I explain in Preserving Director Primacy by Managing Shareholder Interventions (August 27, 2013):
Even though the primacy of the board of director primacy is deeply embedded in state corporate law, shareholder activism nevertheless has become an increasingly important feature of corporate governance in the United States. The financial crisis of 2008 and the ascendancy of the Democratic Party in Washington created an environment in which activists were able to considerably advance their agenda via the political process. At the same time, changes in managerial compensation, shareholder concentration, and board composition, outlook, and ideology, have also empowered activist shareholders.
There are strong normative arguments for disempowering shareholders and, accordingly, for rolling back the gains shareholder activists have made. Whether that will prove possible in the long run or not, however, in the near term attention must be paid to the problem of managing shareholder interventions.
This problem arises because not all shareholder interventions are created equally. Some are legitimately designed to improve corporate efficiency and performance, especially by holding poorly performing boards of directors and top management teams to account. But others are motivated by an activist’s belief that he or she has better ideas about how to run the company than the incumbents, which may be true sometimes but often seems dubious. Worse yet, some interventions are intended to advance an activist’s agenda that is not shared by other investors.
Accordingly, in that article I proposed managing shareholder interventions through changes to the federal proxy rules designed to make it more difficult for activists to effect operational changes, while encouraging shareholder efforts to hold directors and managers accountable.
