Shareholder Access, the SEC and Corporate Governance: Electronic Shareholder Forums (Part 3)

We are discussing the proposal made by the Securities and Exchange Commission that would amend Rule 14a-8(i)(8) to clarify that proposals may not be excluded that would sometimes require management to include shareholder nominees in the company’s proxy statement (“access proposal”).  The proposal is contained in Exchange Act Release No. 56160 (July 27, 2007).  This Blog has already written extensively about the alternative proposal made by the Commission that would deny shareholders access for this purpose and has submitted to the Commission a comment letter on the non-access proposal and on the access proposal.  The comment deadline expired on October 2, although the Commission invariably takes into account letters received after the closing date. 

We are currently talking about the limitations imposed on those making access proposals.  We will pick up that thread on Monday.  Today we want to talk briefly about the proposals designed to facilitate electronic shareholder forums. The Release indicates that an important purpose of these forums is to enable “companies to better communicate with shareholders”. It would do so by reducing a sponsor’s exposure for statements made by “another person” under the federal securities laws.  The proposal would also amend Rule 14a-2 to exempt from most of the proxy rules solicitations that were made more than 60 days before a shareholder meeting.

Any proposal designed to increase shareholder communications is welcome. There are some issues, however, that require additional consideration. First, the forums can be easily set up to limit access. Thus, for example, a company could prohibit participation by, or refuse to publish comments from, shareholders that are critical of management. The forums would become a mechanism for a one sided discussion.

Second, the proposal permits complete anonymity. For ordinary shareholders, this may be appropriate. In some instances, however, the identity of the speaker will be extremely important to shareholders. This is particularly true for statements by a company or a company’s agents or for a shareholder engaging in a solicitation or planning to engage in a solicitation.

The Commission needs to seriously weigh whether to make the exemptions from liability contingent upon the creation of electronic forums designed around full disclosure and equal access.