A Victory for Access (Sort Of)

Chairman Cox, according to BNA, announced yesterday that there would be no immediate action on the shareholder access proposals currently under submission for public comment. With the Commission down one democrat, there was a growing fear that the Commission was determined to put in place a permanent rule for the 2008 proxy season and that the rule would impose a no access approach.  Getting a no access proposal in place before the advent of the 2008 proxy season was going to be tough no matter what. The no access proposal circulated by the Commission has many flaws including imprecise language that went well beyond the issue of access. It would have taken the staff some time to craft a workable rule.  

According to BNA, Chairman Cox indicated that the proposal "should go back to the drawing board" and that the staff should "think of this problem anew."   Nonetheless, he indicated that the Commission might craft a temporary rule applicable only to the 2008 proxy season. 

The decision came after Senator Dodd, Chairman of the Senate Banking Committee, sent a letter (signed by eight other democrats) to Cox seeking delay in any consideration. As the letter noted: "Some have speculated that the Commission will adopt a new rule for the 2008 proxy season and reconsider other proposals next year. We think such a course of action would be disruptive, could lead to having public companies comply with three different regulatory schemes in two years, and is not advisable."  As for the position of Senator Dodd and the eight democrats, the letter explained:  "It is our judgment that the securities markets and investors would best be served by adopting no new rule at this time; the Commission should not adopt either of the proposals."  This is, by the way, the same position taken by this Blog.   This letter follows up on a similar effort by Barney Frank in the House.

So where do things stand?  It is still possible that the Commission will fashion a short term rule that imposes non-access for the 2008 season.  Why?  Because Chairman Cox still has to convince the two other republicans on the Commission to pass even a temporary measure and both are opposed to access.  The statements of Chairman Cox, however, suggest that this will be a temporary measure, presumably expiring at the end of the proxy season.  By then, the replacement democrats will be on the Commission and Chairman Cox will have the votes for some type of permanent access proposal (assuming this doesn't get lost in the election cycle). 

It would, of course, be better for the Commission to do nothing and leave in place the standards set out in AFSCME.  That would provide an additional year of experience with access and give both sides data on the consequences of access.  Most likely the data will show that the number of successful access proposals are modest and the instances of the election of a shareholder director pursuant to an access proposal rare.  In other words, allowing access does not significantly disrupt the corporate governance process. 

While all of this goes on, attention shifts back to the democrats in the Senate to make sure that they put on to the Commission replacement commissioners who will aggressively support access.  It is not clear that all of the nominees currently under discussion will do so.