Risk & Compliance

SEC Blesses Companies that Deny Proxy Access

In a blow to holders seeking more governance rights, the regulator affirms its stance hindering director nominations by investors.
Stephen TaubFebruary 12, 2008

Shareholder activists hoping to gain wider access to corporate proxies have been dealt another setback by the Securities and Exchange Commission.

The SEC told a number of companies, including Bear Stearns, JPMorgan Chase & Co., E-Trade Financial, Croghan Bancshares, and Kellwood Co., that the regulator won’t stand in the way of companies that deny shareholders that seek more say in nominating directors, according to the Associated Press.

The SEC’s move came in the form of “no action” letters. These documents state that if these companies exclude a proxy-access proposal from the documents relating to their annual meeting, the SEC will not bring legal action.

The letters were received after the SEC’s vote against its own proposal to allow shareholders who own 5 percent of a company to formally suggest bylaw changes related to director nominations. Had the proposed rule passed, shareholders would have been able to vote on those types of nominations, thus letting them put their own director candidates on the ballot.

Instead, the commission voted three-to-one, along party lines, for a competing proposal that was considered by shareholder advocates as more restrictive. These advocates want companies to institute a proxy access policy allowing shareholders to avoid launching proxy fights as a way of getting their preferred director candidates nominated.

However, such business-friendly groups as the Business Roundtable and the U.S. Chamber of Commerce have vehemently opposed that concept, arguing that it would lead to special interest groups having too much sway over corporate decisions.

SEC Chairman Christopher Cox sought outside input on the issue last summer, voting to release both proposals for public comment. But he then sided with his fellow Republicans in November. The only Democrat on the commission at the time, Annette Nazareth, dissented. She has since left the SEC.

The commission’s vote was prompted by a 2006 court ruling in favor of The American Federation of State, County and Municipal Employees (AFSCME), a long-time advocate for proxy access, which had sent the issue back to the SEC to clarify its position. “We’ve expected this response,” Richard Ferlauto, AFSCME’s director of pension investment policy for, told the AP following the news about the no action letters.