On First Read, Expect Proxy Access to be Retooled for 2012

by Gary Larkin for The Conference Board – Governance Center Blog, April 19th, 2011.

Wouldn’t it be the ultimate irony if the shareholder proxy access rules approved by the SEC under the Dodd-Frank Act were thrown out by a federal court because they could cost companies too much money? One of the major thrusts behind proxy access over the past couple of decades was that the traditional proxy fights to replace directors has been cost prohibitive to minority shareholders who had to pay for their own ballots.

Most likely the court won’t strike down the rules entirely, but instead will ask the commission to tweak the rules to take into account its concerns about costs of implementing the rules, a major argument made by the federal court hearing the case earlier this month.

The proxy access rules approved by the SEC (Rule 14a-11 and amendments to Rule 14a-8) might not withstand federal court scrutiny unscathed. At least, that is the early read from news reports following the line of questioning of the three U.S. Court of Appeals for the District of Columbia Circuit judges hearing oral arguments in the U.S. Chamber/Business Roundtable lawsuit vs. the SEC.

At the court hearing, two of the three judges questioned the premise of the SEC’s argument regarding the effect the rules would have on costs. Judges David Sentelle and Douglas Ginsburg poked holes in the SEC’s logic that through proxy access there would be fewer contests for director seats. (continue reading… )

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