August 10, 2009
Elizabeth M. Murphy
Securities and Exchange Commission
100 F St. N.E., Washington D.C. 20549-1090
Re: Facilitating Shareholder Director Nominations (File No. S7-10-09)
Dear Ms. Murphy:
Americans for Financial Reform (AFR) is a coalition of nearly 200 national, state and local consumer, employee, investor, community and civil rights organizations working to ensure reform in our banking and financial system that creates economic security for the American family. Central to this economic security agenda, AFR supports corporate governance practices that promote transparency, accountability, and responsibility that will rebuild trust in the financial markets and thereby create shareholder and social wealth.
We believe that there is an urgent need to amend the proxy rules to better facilitate the exercise of shareowners fundamental rights to nominate and elect directors. Therefore, we strongly endorse the Commissions proposed rule Facilitating Shareholder Director Nominations (the Proposed Access Rule), which promises to create open and fair elections for the nomination and election of corporate directors. The Proposed Access Rule would, if adopted, would be one of the most significant investor reforms in decades—and provide a desperately needed boost to investor confidence. A June 2009 poll of investors by the Opinion Research Corporation for ShareOwners.org found that 57% of those surveyed agreed that strong federal action would help to restore their lost confidence in the fairness of the markets. Eighty-two percent of investors surveyed believed that shareholders should have the ability to nominate and elect directors of their own choosing to the boards of the companies they own.
The financial crisis has highlighted a longstanding concerns of investors—directors failing to appropriately oversee risk, executive pay packages that reward failure rather than performance, a focus on market short- termism that under invests in people, technology and responsible behavior. Shareholder value is squandered through excessive executive pay, ill-advised transactions and other decisions for which the board bears primary responsibility. Exacerbating this underperformance is a deeply flawed director nomination process that impedes genuine board accountability
Shareowners can now only ensure that their director candidates get full consideration by launching an expensive and complicated proxy fight. Management, meanwhile, can freely tap company coffers to fund campaigns for board-recommended candidates. Companies often erect various obstacles, including expensive litigation, to thwart investors running proxy fights. This skewed playing field discourages investors from undertaking valuable steps to hold management and boards accountable.
The AFR believes access to corporate proxy materials for long-term shareowners is fundamental to addressing the problems of director accountability that in part contributed to the financial turmoil we now face. The current crisis was brought on by corporate governance failures at some of the largest mortgage and financial firms that enriched top executives and ignored any type of risk management over the objections of shareholders. Indeed, vote no campaigns by institutional shareholders at Countrywide, Washington Mutual, AIG and Bank of America all point to the need for giving shareholders better tools for board accountability to prevent these types of disasters from happening again. And we have need only need to reflect back only a few years to the scandals at companies such as Enron, Global Crossing, WorldCom and many others to understand that purely regulatory fixes such as Sarbanes-Oxley legislation while vital also need to empower shareholders to intervene when necessary.
While we leave it up to other commentators to response to specific questions posed by the Commission in its rule making. AFR and its constituent organizations support the following principles on which the Commission should proceed with its rule making.
Large, long-term shareowners or groups of shareowners should have a reasonable degree of access to company proxy materials to nominate director candidates
Proxy access should not be used to affect a change of control or advantage short term activists
Full and accurate disclosures about the access mechanism users and the director nominees should be required.
Proxy access should only provide for electing short-slates but allow a minimum election of 2 directors on nay board
shareholders should be allowed to adopt a more expansive proxy access regime using the shareholder proposal rule accordingly, we favor the amendments to Rule 14a-8 included in the Proposed Access Rule.
Americans for Financial Reform
1825 K Street, Suite 210
Washington, DC 20006