Speech by SEC Chairman:
Remarks before the SEC's Roundtable on the Federal Proxy Rules and State Corporation Law
Chairman Christopher Cox
U.S. Securities and Exchange Commission
Good morning, and welcome to the SEC's roundtable on shareholder rights and the federal proxy rules. This is the first of three roundtables on the proxy process
that the SEC is hosting this month. The purpose of these roundtables is to elicit comments and opinions that will help inform our thinking as we develop a proposal to amend our proxy rules, which we expect to have ready by early summer. This is an important rulemaking that involves fundamental questions of what shareholders get to do, and how they get to do it.
May 7, 2007
In these roundtables, we're starting with the legal framework underlying the proxy rules -- both in state law and federal law. That's today's topic. In the next roundtable, we'll get into the mechanics of the voting process -- including such questions as broker voting, overvoting, and empty voting -- and in a third roundtable we'll listen to stakeholders and other knowledgeable parties about what works now and what could be made to work better. So we have a truly broad scale in these roundtables, and today is just the beginning -- although as you will see from the distinguished panel we've assembled, it's a very powerful beginning.
So I want to begin by welcoming our distinguished panelists today, who include two Vice Chancellors of the Delaware Court of Chancery, eight law professors, practicing lawyers who are experts on corporate laws, including those of Delaware and Maryland as well as the Model Business Corporation Act and the UK Companies Act, and representatives of the individual and institutional investor community. We're bringing these different perspectives and areas of expertise to the table this morning because our objective for this and for the other roundtables is to take a thorough, top-to-bottom look at what is, and what should be, the SEC's role in regulating the proxy solicitation process.
In 1934, when Congress enacted the Securities Exchange Act, it charged the Commission with regulating the proxy process. And at that moment, 73 years ago, there began the important federal role in vindicating state law rights. The system that Congress authorized the SEC to devise was meant to replicate as nearly as possible the opportunity that shareholders would have to exercise their voting rights at a meeting of shareholders, if they were personally present. As SEC Chairman Ganson Purcell put it in 1943, "The rights that we are endeavoring to assure to the stockholders are those rights that he has traditionally had under State law, to appear at the meeting; to make a proposal; to speak on that proposal at appropriate length; and to have his proposal voted on."
Just how that should be done, however, has been the subject of extensive debate and real life experience over the many ensuing decades. Since 1934, the proxy rules have been amended many times -- most recently in 1992. Today, they comprise a complex set of procedural and substantive requirements for shareholder proposals.
Whether today's system is what Congress intended when it created a federal role for the vindication of shareholders' state law rights is a key question that our roundtable panelists will discuss today.
Today's roundtable is composed of four panels. The first panel will address the federal role in upholding shareholders' state law rights. Among other things, panelists will discuss the scope of shareholders' voting rights under applicable state law, the limitations that state law imposes on shareholders' ability to govern the corporation, and the core authorities that state law gives shareholders to choose the directors of the corporation, to propose bylaw amendments and vote on them, and to vote on charter amendments.
The second panel will focus on the purpose of the federal proxy rules and their effect on the exercise of shareholders' state law rights. Panelists will discuss how the federal proxy rules have affected the ability of shareholders to make proposals on subjects that fall within the rights of shareholders under state law -- and on subjects that fall within the province of the board of directors and management.
In the afternoon, the third panel will address non-binding shareholder proposals, and explore the benefits and shortcomings of our current system of allowing some non-binding proposals, but not others.
The final panel of the day will address binding shareholder proposals under the federal proxy rules. Panelists will discuss the important question of whether the federal proxy rules fully vindicate shareholders' rights in those areas which are most clearly the responsibility of shareholders under state law -- proposing and voting on bylaw and charter amendments, and nominating and voting on directors.
On behalf of the Commissioners and the Commission's staff, I would again like to thank our distinguished panelists for their participation in today's roundtable. We look forward to listening to and learning from the discussions today.