SEC Commissioner Paredes' First Significant Act

On Friday, Commissioner Paredes took the oath of office and joined the Commission. Continuing a long line of law faculty who have served on the Commission, Paredes most significant contribution so far is to replace Paul Atkins.

While one republican steps into the shoes of the other, it is hard to imagine that the change will do anything but improve the output of the Commission and reduce the shrill tone often emanating from the body.

Atkins, in his six or so years on the Commission, managed to be on the opposite side of almost every shareholder friendly initiative of any great importance. Stoneridge? Against the position taken by shareholder. Access? Against the position taken by shareholders. The Enforcement division, the office responsible for enforcing the investor protection requirements of the securities laws? Constant criticism and calls for a panel to evaluate (read weaken) the division. Fines imposed on companies that commit fraud? In general, against them. The credit crunch and the subprime problem? A paean to his anti-regulatory philosophy and a call not to "immediately jump" to the conclusion that the problems are from market or regulatory failure. His parting shot in the corporate governance area? To participate in the Commission's decision to certify a shareholder proposal to the Delaware Supreme Court, an act that resulted in a predictably anti-shareholder decision that will now make proposals harder to insert in proxy statements.

With all of that in mind, we turn to Atkin's last set of remarks on access. The speech was delivered on July 22, reflecting how Atkins wanted to be remembered with respect to his involvement in the access issue. Of course the content was predictable given the audience: The Chamber of Commerce, the organization probably most in sync with Atkin's views. The talk began with an attack on Rule 14a-8. "Some would argue — and perhaps correctly — that the SEC's Rule 14a-8 on shareholder proposals inappropriately infringes upon state laws that govern the relationships among shareholders and between shareholders and the corporations that they own."

The comment wasn't explained and perhaps for a non-lawyer it was enough to just say it. But most lawyers will recognize that the view is wrong. Rule 14a-8 addresses the right to include proposals in a proxy statement, a document that is entirely a creation of federal law. Proposals are excluded if they violate state law, providing states with an ultimate veto over the availability of the rule. The comment isn't any kind of statement about the law. Its a reflection of Atkin's anti-shareholder bias. He simply dislikes that Rule 14a-8 provides shareholders with an opportunity to express their views, invariably in a non-binding manner, on managerial issues they consider important. In other words, shareholders should be seen (by providing capital) but not heard. It is a view that is belied by reality, particularly as public companies are more and more owned by institutional investors. These investors want greater opportunity to communicate their views with management whether Atkins likes it or not.

He rightfully realizes that the anti-shareholder approach he struggled to promote may not survive long after his departure. In the speech he expressed concern that the agency permit access in time for the 2009 proxy season.

• My most significant concern is that the Commission could try to move to adopt a final rule based on the long release without additional public notice or comment. The long proposal was controversial with almost every group commenting on it — including procedural aspects as well as specific thresholds contained in the rule. Of course, it suffered from concerns as to the SEC's authority to do it, plus it undermines the proxy disclosure and solicitation regime. In addition, much has happened since the comment period closed on October 2, 2007.

Atkins had no difficulty with the adoption of the short proposal (denying access) despite vociferous criticism. He made no effort to compromise or try to address the interests of a large number of commentators, including almost all significant shareholder groups. He was able to have an accentuated degree of influence because of the makeup of the Commission, with no democrats present at the most critical junctures.

But Atkins no longer has a decision making role and the agency has its full complement of democrats. Perhaps Chairman Cox will revisit access for the 2009 proxy season as Atkins suspects. But it hardly matters. With regime change coming following the November 2008 elections, access will be revisited one way or another. The pressure of shareholders is simply too great (take a look at my paper, The SEC, Corporate Governance, and Shareholder Access to the Boardroom). In fact, while Atkins struggles to oppose access of any kind, the truth is that Chairman Cox has a brief window to put in place a system of access that will likely be rarely used and lead to few changes on the board. If he doesn't, the form of access ultimately implemented will likely to be far more invasive. Chairman Cox knows this, Paul Atkins does not.

Comments

[Reader]

How do we reduce the shrill tone emanating from this blog?

[J. Robert Brown]

Its a fair comment. In writing in a sometimes opionated way, a post can cross a line from informative to shrill. If it does, it detracts from the message. I was aware that this post had that possibility but thought I had remained on the non-shrill side of the line. My wife, by the way, disagreed. Let me know when you see other examples and I will weigh the comment or comments in the crafting of posts.

[MDF]

In addition to being the bane of several Republican chairmen, who didn't appreciate his damn-the-political-consequences approach, Atkins was able to punch above his weight ever since Roel Campos left because, even if he had only one vote, his vote was necessary for there to be a quorum. Consequently, by failing to show up to a Commission meeting, he could effectively veto any Cox proposal. With a full complement of commissioners, this leverage is now gone.