Shareholder Proxy Vote Passes Despite Opposition
August 25, 2010
The Securities and Exchange Commission (SEC) passed a measure Wednesday that would effectively issue additional rights to shareholders and their say into companies they have a vested interest in.
While the vote passed 3-2 in favor of the adoption of rule 14a-11, Commissioners Kathleen Casey and Troy Paredes voiced their reservations toward the updated regulation that in their words, issues a “one-size-fits-all” and “asymmetrical” approach to shareholder rights. The two said that this is not the appropriate way to address and update the nearly 30-year old set of federal proxy rules.
With the rules passage, the federal agency will offer “long-term significant shareholders” the right to nominate candidates to the Boards of the companies they own. Under the new rules, proxy access will be available to shareholders, or a group of shareholders, who own or have owned continually for three years and have at least 3% of the company’s voting stock, the Commission said.
According to the numbers, the SEC and its staff increased ownership standards for large corporations from 1% to 3% and increased period of ownership of all sizes and shapes from 1 to 3 years. Smallest companies, which will have this new rule set’s implementation delayed for the next three years so that the regulator can see its true effectiveness on the larger sect, could possibly see their ownership threshold decreased from 5% to 3%.
In her disagreeing comments, Casey explained that the new “unnecessary rule” would prevent states from implementing their own state law and show favoritism to institutional investors.
“These shareholders do not represent the interest for all shareholders,” Casey said at the Aug. 25 meeting in Washington D.C., while voicing concerns with of the effects of the rule may have on capital markets and small businesses. She called the statutory modification a reaction to “political pressures.”
Alternately, Chairman Mary Schapiro and Commissioners Luis Aguilar and Elisse Walter voted in favor of the change. Through the nearly 600 comments it received from corporations, investors and members of the academia for its July 14 proxy concept release, SEC Commissioners and staff said that they analyzed comments to put the best product forward.
“These rules are the result of long and careful consideration of the often widely divergent views expressed by commenters, as well as constructive debate within the Commission and among its staff,” Schapiro said. “These rules are stronger and will be more effective because of our concerted effort to balance competing interests.”
The new rule, which could see “dozens of instances of give and take” as the public reviews the changes, will also allow qualifying shareholders to also nominate one candidate or 25% of the board, whichever is greater, Schapiro said in her comments.
As one of the proponents for the revision, institutional investor CalSTRS offered its praise for the Commissions efforts. Presently, the California State Teachers’ Retirement System is valued at $134.3 billion, and provides benefits to nearly 848,000 public school educators and their families.
