The absurdity of the SEC’s shareholder proposal policy and a proposed reform

by Professor Bainbridge, February 19th, 2011.

SEC Rule 14a-8 permits qualifying shareholders to force the issuer to include a proposal and supporting statement in the company’s proxy materials and thereby to force a vote on the issue at the annual shareholders’ meeting.

Shareholder proposals traditionally were used mainly by social activists. Prior to the end of apartheid in South Africa, for example, many proposals favored divestment from South Africa. The rule is still widely used by social activists, but the rule also is increasingly being used by institutional investors to press matters more closely related to corporate governance. For example, proposals in recent years have included such topics as repealing takeover defenses, confidential proxy voting, regulating executive compensation, and the like.

Not all shareholder proposals must be included in the proxy statement. Rule 14a-8 lays out various eligibility requirements, which a shareholder must satisfy in order to be eligible to use the rule. The rule also lays out various procedural hurdles the shareholder must clear. Finally, the Rule identifies a number of substantive bases for excluding a proposal. (continue reading… )



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