The Uncertain Future of Proxy Access

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In Wednesday’s edition of NACD Directors Daily, the Wall Street Journal reported that the SEC, under the direction of Chairman Mary Schapiro, will not challenge the decision of the U.S. Court of Appeals for the DC Circuit striking down proxy access. Chairman Schapiro hinted, however, that the SEC may introduce a new rule in the future. In her official statement regarding this issue, Schapiro said that providing proxy access is “in the best interest of investors and our markets. She continued to say she remains “committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards.” If the SEC takes a second bite at the apple, when can directors expect to see mandatory proxy access again?

Short answer: not anytime soon. The SEC will presumably engage in a more robust analysis of the effects proxy access may have on corporations, boards, and shareholder value, likely taking most of 2012. After which, the agency would presumably follow the usual rulemaking process of issuing a proposal, integrating public commentary, and voting on a final rule. Those steps can take many months to complete. Even if a second proxy access rule is unchallenged by the Business Roundtable and U.S. Chamber of Commerce, it would not likely be in effect until the 2014 proxy season.

While mandatory proxy access may still be several years away, directors should not write it off altogether. Part of the SEC’s proxy access rule (amendments to 14a-8) allows private ordering through shareholder proposals. The changes to 14a-8 were not challenged in court but were nevertheless stayed by the SEC pending the outcome of the case. Now that the case is complete, this part of the rule goes into effect on September 13, allowing investors to submit shareholder proposals to allow for proxy access on a company-by-company basis.

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