Business Roundtable v. SEC: The Battle for Access (Unions and their Soapbox) (Part 6A)

The other argument about costs seemed to be less a legal argument than an attempt to thrash unions and public pension plans.  The approach makes for good reading in the boardroom but is less legally.   

The SEC failed to take into account costs associated with nominations made "not in an attempt to gain election, but as a 'soapbox' to address their special interests".  Those costs would need to be "borne by the company and, ultimately, other shareholders."  Moreover, the omission was one of "willful ignorance." 

• The Commission also based its assessment of the Rules’ costs on willful ignorance toward the agenda and practices of activist institutional investors, and the conduct of directors and corporations. Commenters warned that special interest investors would use proxy access as leverage to obtain concessions from companies; as a “soap box” to voice disagreements with company policy; and to seek the election of candidates favorable to the special interests of labor unions or the political officials in charge of government pension funds.

These "activist" shareholders are identified as unions and public pension plans.  The Brief certainly makes clear the corporate concern with the use of access by these groups.  But as a matter of legal analysis, the argument is harder to follow.  To the extent that the SEC properly quantifies the number of access challenges (put at 51) and properly quantified the costs associated with each challenge, it is not clear why the identity or motivation of the shareholders making an access challenge matters. 

Take the soapbox argument.  Even if its true that some shareholders will use access as a "soapbox," the additional "costs" of such an approach are unclear.  In making this argument, Petitioners are not asserting that, as a result, there will be more access challenges than the SEC has estimated (although they do challenge the SEC's estimates on other grounds).  It is as if somehow the soapbox motivation in and of itself increases costs. 

The analysis in the Brief suggests the real concern.  The Brief likely wants the court to believe that board elections will become a referendum on union demands.  As evidence, the Brief points out the use of shareholder proposals by unions and public pension plans.  These shareholders, for example, submit most of the proposals seeking majority vote requirements and independent chairs of the board.  

In other words, the investors use their authority under the proxy rules to promote better governance.  In that context, "soapbox" really means the efforts by unions and government plans to publicize inadequate governance practices by public companies.  And, indeed, access challenges are likely to center around the perceived inadequacies of management and the company's weak corporate governance.  It is this type of criticism and this type of soapbox that management would no doubt like to forestall.   

Assorted briefs and motions in this case, including the brief filed by the Business Roundtable, can be found at the DU Corporate Governance web site.