Statement by SEC Commissioner:
Statement before the Open Meeting regarding Shareholder Proposals
Commissioner Paul S. Atkins
U.S. Securities and Exchange Commission
July 25, 2007
Thank you, Mr. Chairman. The topic before us is one that has long vexed many of our predecessors. It seems that at least once a decade, we engage in a significant review of the proxy rules — just look at what we did in 1976, 1982, 1992 and 1998. I had personal and intimate experience with the 1992 change, when I worked here previously. And now, during the first decade of the 21st century, this is already the second time we have engaged in an extensive review and discussion about the proxy rules.
The key question is how to address the competing problems of collective action versus the tyranny of the minority. How do we permit shareholders effectively to exercise their state corporate franchise rights without allowing a shareholder, who may have only a nominal economic interest, to hijack the agenda of all shareholders? We have tried to bridge this problem with Rule 14a-8, a rule that, while far from perfect, has at least created a framework for dealing with these problems.
Today, we have proposed taking action on this issue. The need to address this issue has been precipitated by the Second Circuit's decision last year in AFSCME v. AIG. That decision has created an air of uncertainty as to what is the current state of our regulations with respect to the election exclusion of Rule 14a-8. This uncertainty must be cleared up. It is unfair to both companies and shareholders alike to keep the current murky situation in place. By doing nothing, we invite costly and fruitless litigation. It is further unfair to create an environment where contested elections could occur for seats on the board of directors outside of the disclosure regimen imposed by Rule 14a-12. Thus, the current situation is simply not acceptable.
So, as to the two proposals to be published for comment today, one I can support but the other I cannot. There are aspects of the latter that I can support, but overall I have significant questions regarding our authority to take some of the steps proposed to be taken. In particular, while I agree with the statements in the second release emphasizing that it is substantive state law that governs shareholder rights, I have concerns whether some of the proposals may conflict with that principle. I also worry about the slippery slope of some of the provisions.
Moreover, I do not believe that the second proposal takes into account all of the recent changes in corporate governance or other more measured steps that we can take to continue to drive down the costs and improve the efficiency of running short slates of directors — even a short slate of one — that may lead to the attaining of the goals of responsible long-term shareholders concerned with the financial performance of their companies.
Nevertheless, I look forward to the debate that lies ahead. As the chairman said, a lot of discussion and thought has transpired among the commissioners and the staff on this issue, especially during the past couple of weeks leading up to this meeting. I want to recognize the members of the staff, who have sacrificed their weekends and nights during this period in order to respond to various ideas and suggestions being put forth by the commissioners. Your efforts are tremendously appreciated.