Business Roundtable v. SEC: The Battle for Access (A Bit of Irony) (Part 9)

The Brief provides a bit of irony.  The Petitioners essentially assert that, instead of access, the Commission should have merely amended Rule 14a-8 to allow for access bylaws.  As the Brief states:

• In this rulemaking purportedly intended to empower shareholders, numerous commenters and the dissenting Commissioners argued that shareholders should have the authority to institute alternative, more demanding requirements for proxy access, or to bar it altogether. Had the Commission adopted only the rulemakings’ amendments to Rule 14a-8; allowed shareholders to opt out of the Rules; or deferred to state procedures such as those adopted in Delaware and the Model Business Corporation Act, shareholders could have adopted the proxy access regime they judged best, even if it was more restrictive than Rule 14a-11.

If it sounds familiar, it is.  The SEC in the summer of 2007 proposed a rule that would have allowed access bylaws under Rule 14a-8.  See Exchange Act Release No. 56160 (July 27, 2007).  The proposal was never adopted in part because of resistance by the corporate community, including the Business Roundtable.  As the 2007 letter from the Business Roundtable argued:  

• allowing access bylaw proposals would have a number of harmful effects. It could lead to the election of “special interest directors” who will disrupt boardroom dynamics and harm the board’s decision-making process. The end result will be to jeopardize long-term shareholder value by compromising the board’s ability to act inthe long-term best interests of the company and all shareholders. In addition, permitting access bylaws could turn every director election into a contest and discourage qualified, independent directors from serving on boards. It would also increase the costs of director elections and shift the costs of proposing nominees from particular shareholders to companies and ultimately, to all shareholders.

We argued on this Blog at the time that some of the opposition to the access bylaw proposal was shortsighted.  These bylaws only allowed for access where shareholders first succeeded in passing the requisite bylaw and then, the following year, submitting nominees. 

The evidence suggested that shareholders would have a hard time accomplishing this two step process.  In the three instances where access bylaws were put before shareholders (during the brief window before the SEC clamped down in 2008), only one passed, suggesting that shareholders would not propose them very often and when they did, would generally lose.  These instances are all discussed in The SEC, Corporate Governance, and Shareholder Access to the Board Room.

In other words, access bylaws really didn't advance shareholder rights much at all or provide any meaningful opportunity to nominate directors.  Had issuers supported the proposal by the Cox Commission, it is likely that Mary Schapiro's Commission would not have proposed an access rule, Dodd-Frank would not have given access authority to the Commission, and shareholders would not now be singularly focused on the issue. 

Assorted briefs and motions in this case can be found at the DU Corporate Governance web site.