SEC expected to propose new rules around proxy advisers and shareholder proposals #CorpGov #ProxyVoting https://t.co/UgAA6VEKJG
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Bainbridge, Stephen Mark, A Comment on the Sec Shareholder Access Proposal (November 14, 2003). UCLA School of Law, Law & Econ. Research Paper No. 03-22. Available at SSRN: https://ssrn.com/abstract=470121:
The Securities and Exchange Commission (SEC) recently proposed a set of amendments to its proxy rules intended to provide shareholders of public corporations with a limited ability to nominate candidates for a corporation's board of directors and to have their nominee placed on the corporation's own proxy statement and card. This essay reviews the principal features of the proposal and identifies several issues remaining for resolution. The essay concludes that the SEC likely has authority to adopt the proposal, but argues that the costs the rule will impose on corporations outweigh any likely benefits from greater shareholder democracy.
Bainbridge, Stephen Mark, Revitalizing SEC Rule 14a-8's Ordinary Business Exemption: Preventing Shareholder Micromanagement by Proposal (March 29, 2016). UCLA School of Law, Law-Econ Research Paper No. 16-06. Available at SSRN: https://ssrn.com/abstract=2750153
Who decides what products a company should sell, what prices it should charge, and so on? Is it the board of directors, the top management team, or the shareholders? In large corporations, of course, the answer is the top management team operating under the supervision of the board. As for the shareholders, they traditionally have had no role in these sort of operational decisions. In recent years, however, shareholders have increasingly used SEC Exchange Act Rule 14a-8 (the so-called shareholder proposal rule), to not just manage but even micromanage corporate decisions.
The rule permits a qualifying shareholder of a public corporation registered with the SEC to force the company to include a resolution and supporting statement in the company’s proxy materials for its annual meeting. In theory, Rule 14a-8 contains limits on shareholder micro-management. The rule permits management to exclude proposals on a number of both technical and substantive bases, of which the exclusion in Rule 14a-8(i)(7) of proposals relating to ordinary business operations is the most pertinent for present purposes. Rule 14a-8(i)(7) is intended to permit exclusion of a proposal that “seeks to ‘micro-manage’ the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.”
Unfortunately, court decisions have largely eviscerated the ordinary business operations exclusion. Corporate decisions involving “matters which have significant policy, economic or other implications inherent in them” may not be excluded as ordinary business matters, for example, which creates a gap through which countless proposals have made it onto corporate proxy statements.
This article proposes an alternative standard that is grounded in relevant state corporate law principles, while also being easier to administer than the existing judicial tests. Under it, courts first look to the state law definition of ordinary business matters. The court then determines whether the matter is one of substance rather than procedure. Only proposals passing muster under both standards should be deemed proper.
Bainbridge, Stephen Mark, The Scope of the SEC's Authority Over Shareholder Voting Rights (May 2007). UCLA School of Law Research Paper No. 07-16. Available at SSRN: https://ssrn.com/abstract=985707 or http://dx.doi.org/10.2139/ssrn.985707
At a May 2007 Roundtable on The Federal Proxy Rules and State Corporation Law, the Securities and Exchange Commission posed the following question for discussion: What should be the relationship of federal and state law with respect to shareholders' voting rights and ability to govern the corporation? To answer that question, this essay reviews the legislative history of Section 14(a) and of the Securities Exchange Act generally, as well as the leading judicial precedents. It concludes that, as a general rule of thumb, federal law appropriately is concerned mainly with disclosure obligations, as well as procedural and antifraud rules designed to make disclosure more effective. In contrast, regulating the substance of corporate governance standards is a matter for state corporation law.
The author was an invited panelist at the May 7th Roundtable and submitted this essay as his written comments.
