Shareholder access to the director nomination process continues to be a topic of interest this proxy season. As the Race to the Bottom notes, the SEC had promulgated a rule that would have “allowed large shareholders (or groups of shareholders) to submit a minority of directors for inclusion in the company’s proxy statement.” However, the rule was successfully challenged by the Business Roundtable. The SEC has yet to adopt new shareholder access rules.
Apparently tired of waiting for the SEC to act, a group of influential institutional shareholders is taking matters into their own hands. According to the New York Times, the group, consisting of the New York City comptroller and the California Public Employees’ Retirement System among others, will ask 75 large companies to include in their proxy statements a proposal modeled after the SEC’s former rule. Specifically, the proposal will ask each company to adopt a bylaw giving shareholders who own at least 3 percent of the company’s stock for at least three years the right to nominate directors.
One firm, Whole Foods Markets, has successfully countered such a 3 percent/three year shareholder access rule with its own proposal, which would permit board nominations by those owning 9 percent of its stock for five years. Corporate Governance posted the SEC’s no-action letter permitting Whole Foods to exclude the proposal under Rule 14a-8(i)(9).
The Harvard Law School Forum on Corporate Governance and Financial Regulation published the summary of a recent paper entitled “The Efficacy of Shareholder Voting in Staggered and Non-Staggered Boards: The Case of Audit Committee Elections”. The paper, written by accounting professors from Northeastern University and Bentley University, finds “shareholders and proxy advisors do apply long term, albeit limited, voting and recommendation strategies to [audit committee] members in staggered boards.”
In a multi-part series, the Race to the Bottom discussed another shareholder rights issue: access to inspect a company’s books and records. Part 1 of the series provides an overview of Delaware law on shareholder inspection rights. Part 2 discusses a recent Delaware Chancery Court case, Wolst v. Monster Beverage Corp. Part 3 questions the Court’s decision.
Corporate Counsel summarized a study commissioned by the National Association of Corporate Directors on the governance priorities of institutional shareholders. Among the study’s conclusions is that institutional investors are looking for directors evidencing good leadership characteristics who are engaged in strategy and risk management.