Speech by SEC Chairman:
Statement at SEC Open Meeting on Facilitating Shareholder Director Nominations
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
May 20, 2009
Good Morning. This is an open meeting of the U.S. Securities and Exchange Commission on May 20, 2009. Today, we are considering a recommendation from the Division of Corporation Finance that the Commission issue a release proposing changes to the federal proxy rules. These proposed changes would facilitate the exercise of shareholders’ rights under state laws to nominate directors.
As observers of the Commission will know, this day has been a long time coming. Let me read a quote:
“Recent disclosures concerning a wide variety of questionable and illegal corporate practices, accomplished in certain instances with the knowledge and participation of top corporate management, have served to focus public attention on the subject of corporate accountability. A number of proposals designed to achieve a new ‘corporate governance’ have been suggested, including placing greater emphasis on the role of outside directors and audit committees, increasing federal control over corporate conduct through legislation which requires federal chartering or setting of minimum standards of corporate conduct, and providing mechanisms to assure a higher level of management accountability to shareholders through revisions of the Commission’s proxy rules.”
At first blush, one might think that this was written recently, triggered by the market crisis of the past year and resulting fragility of investor confidence. But it was actually contained within an April 28, 1977, Commission Release. I hope with all my heart that, 32 years from now, a future SEC Chairman is not quoting my words, calling once again for a new rule facilitating the inclusion of shareholder nominees in corporate proxies.
No less than three times in recent memory has the Commission considered the question of amending our proxy rules to address so-called “proxy access.” The time has come to resolve this debate.
The nation and the markets have recently experienced, and remain in the midst of, one of the most serious economic crises of the past century. This crisis has led many to raise serious questions and concerns about the accountability and responsiveness of some companies and boards of directors, to the interests of shareholders. These concerns have included questions about whether Boards are exercising appropriate oversight of management, whether Boards are appropriately focused on shareholder interests and whether Boards need to be more accountable for their decisions regarding such issues as compensation structures and risk management.
In light of these concerns, the Commission has determined to revisit whether and how the federal proxy rules may be impeding the ability of shareholders to hold Boards accountable through the exercise of their fundamental right to nominate and elect members to company Boards of Directors.
I believe that the most effective means of providing accountability — in a way that is both cost effective and timely — is to ensure that shareholders have a meaningful opportunity to effectuate the rights that they already have under state law to nominate directors.
Under the proposal before us today, shareholders who otherwise have the right to nominate directors at a shareholder meeting will be able to have their nominees included in the company proxy ballot that is sent to all voters. Given the reality of how the proxy process works, this would turn what would otherwise be a somewhat illusory right to nominate into something that is real — and has a real chance of holding boards of directors accountable to company owners.
As a means of further ensuring that shareholders determine the rules that affect their own rights, shareholders will also be able to use shareholder proposals to affect nomination procedures in any way that does not conflict with the Commission’s rules.
The staff of the Division of Corporation Finance has taken great care to ensure that the proposed rules strike the appropriate balance between facilitating shareholder rights and understanding the logistical mechanics of putting together proxy materials and holding annual shareholder meetings. Whether we have reached the right balance will be among the many questions that the Release will ask. I urge all commenters to review and respond to the questions thoroughly. As I hope all appreciate, the Commission takes all comments very seriously, and I am quite confident that our final rulemaking will be better because of the comments that we receive.
Perhaps because this proposal has been such a long time coming, I have a very long list of staff to thank. From the Division of Investment Management, thanks to Susan Nash, Mark Uyeda, and Kieran Brown. Thank you also to the staff of our Office of Economic Analysis, particularly Ayla Kayhan, Josh White, Alex Lee, and Cindy Alexander. Our Office of General Counsel is always key to any rulemaking, and I particularly thank Meridith Mitchell, Jeffrey Singdahlsen, David Fredrickson, Bryant Morris and Dorothy McCuaig. And of course our General Counsel, David Becker, has been invaluable. I would also like to thank each of the Commissioners and their counsel, for their tireless review and important comments. Lastly, a huge thank you goes to the Division of Corporation Finance, especially Brian Breheny, Lily Brown, Tamara Brightwell and Eduardo Aleman. I know how many weekends and long nights that you worked on this proposal, and again all I can say is “thank you.”
Now I’ll turn the meeting over to Brian Breheny, Deputy Director of the Division of Corporation Finance, to hear more about the Division’s recommendations.