The SEC Roundtable on the Proxy Rules

The SEC has posted the transcript on the Roundtable held earlier this month on the proxy rules and their relationship to state law.  It is the first of three.  This one was heavily weighted with academics, judges and practicing lawyers.  If you have only limited time, read the remarks of Leo Strine, Vice Chancellor of the Delaware Court of Chancery.  In the meantime, we will provide a few excerpts over the next few days.

We start with some remarks by William Underhill, Counsel with Slaughter & May, a London based law firm.  It is clear from the description provided by Mr. Underhill that shareholders in UK companies have far greater authority than in the US.  After noting that directors "can be removed by a simple ordinary resolution, which is supported by a majority of the votes cast at the meeting," he listed matters that require shareholder approval, including the authority of directors "to allot shares for cash on a no-preemptive basis", "transactions with directors or substantial shareholders," and political contributions.  They are givne an advisory vote on remuneration and remuneration policies and boards of public companies must separate the position of CEO from chairman.  Nominations for director and petitions to remove directors are automatically inserted into the proxy statement (although only shareholders meeting a 5% threshold).  Interestingly, though, was that these additional rights are accomplished:

• "against a background where shareholders' access to the courts in order to enforce proper governance and proper standards by their directors is very much less, perhaps than it is here, that the prospect of class actions is very much diminished, that the ability to bring a derivative action, while that's changing, is till not going to be an open door.  So the courts aren't really an answer.  All shareholders have is access to general meetings and that's why these rules are particularly important." 

The testimony suggests that there can be a greater role for shareholders in the governance process without resulting in cataclysmic consequences to the US economic system.  It also suggests, to those who want to reduce litigation, that the trade off in return might be greater rights for shareholders.