Risk & Compliance

SEC Blames Split Votes on Time Crunch

The SEC commissioners' release of two contradictory shareholder proposals raised eyebrows in the Senate, but chairman Christopher Cox testified tha...
Sarah JohnsonJuly 31, 2007

Senators criticized Securities and Exchange Commission chairman Christopher Cox for releasing two proxy-access proposals that seem to contradict each other. At a hearing on Tuesday, Sen. Jack Reed (D-R.I.) called the proposals “diametrically opposed” and an unprecedented move in the SEC’s history.

Senators also took aim at divisions last week among the commissioners themselves, which were also sparked by concerns over the contradictory proposals. Dissent among the commissioners is nearly unprecedented under Cox’s tenure. During Cox’s chairmanship, he has managed to get consensus from them 98 percent of the time until last week, a statistic he defended before the House Financial Services Committee earlier this summer. Unanimous votes provide “clarity and consistency in our regulatory and enforcement programs,” he said at the time.

Cox’s ability to garner consensus has been noteworthy, since the SEC is traditionally split along party lines, with the chairman, a political appointee, typically representing the tie-breaking vote. In the current SEC, commissioners Roel Campos and Annette Nazareth are Democrats, while Cox and the remaining commissioners are Republicans. But last week he voted once on the side of the Democrats for releasing one proposal for public comment and on the side of Republicans for releasing another, somewhat similar proposal.

Campos, Nazareth, and Cox voted in favor of releasing the proposal that would give shareholders who own 5 percent of a company the right to propose changes to that company’s bylaws regarding director nominations. The other proposal — which also had a 3-2 vote, with Cox voting this time on the side of the Republicans — would allow companies to exclude such bylaw proposals.

At the Tuesday hearing before the Senate Committee on Banking, Housing, and Urban Affairs, Cox defended the release of the contradictory proposals — which were put out for a 60-day public comment period on July 27 — blaming the unusual move on time constraints.

Because a federal court ruled earlier this year against an interpretation of the SEC’s current rules regarding proxy access, the regulator has to make some changes before the next proxy season, Cox noted. For that reason, the proposals may seem rushed. In fact, Nazareth criticized the process for the proposals during the SEC’s open meeting last week, saying she did not have enough time to adequately go over the options.

Earlier this year, the U.S. Court of Appeals for the Second Circuit ruled that American International Group could not use the SEC’s Rule 14-a8(i)(8) to exclude a shareholder proposal for changing a company’s bylaw that would have required the company in some instances to include shareholder’s nominees for directors in AIG’s proxy materials.

“There will be a rule in place this fall for this coming proxy season,” Cox said. Ideally, the commissioners would have conferred on the issues for a longer period of time, he acknowledged, but did not have enough time this go round.

Christopher Dodd, the Senate committee’s chairman, emphasized the short time frame before the SEC by warning Cox that his committee would consider crafting legislation if the commission doesn’t implement a change to its proxy-access rules soon.