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June 21, 2010
Conference Committee Poised to Abandon Proposed Corporate Governance Reforms
    by Robert Kropp

Institutional investors object to proposal to raise minimum voting threshold for proxy access to five percent, claiming it would make the provision unusable.

Proxy access, which would require corporations to include shareowner nominees for directors in their proxy materials, is widely considered by sustainability investors to be a necessary response to the corporate irresponsibility that caused the financial crisis. Last year, the Securities and Exchange Commission (SEC) proposed a number of rules addressing improved corporate governance, which included proxy access; and in a recent speech, SEC Chairman Mary Schapiro indicated her commitment to “a timeframe that would put the rules into effect for the 2011 proxy season.”

The rules on proxy access proposed by the SEC last year would apply to all public companies, and include minimum ownership requirements for shareowners seeking to nominate directors. For companies with assets of $700 million or more, a one percent ownership threshold would be required. The threshold would be three percent for companies with assets of $75 million or more, and five percent for companies with assets of less than $75 million. Unaffiliated shareowners would be permitted to aggregate their holdings in order to reach the thresholds.

Both versions of the financial regulatory reform legislation passed by the chambers of the US Congress included the thresholds proposed by the SEC. However, negotiations over the provisions to be included in final legislation are currently underway in conference committee, and opportunities for corporate lobbyists to influence politicians remain. The threshold is being challenged by lobbyists for the Chamber of Commerce, for instance, which wants the one percent threshold proposed for large corporations increased to five percent.

Reports that have surfaced over the past few days indicate that Senator Christopher Dodd of Connecticut, the Senate Banking Committee Chairman, has proposed that final legislation include the five percent threshold for all companies for which the Chamber is lobbying. According to Dodd, capitulation on the issue is necessary to gain 60 votes in favor of the legislation in the Senate.

Reaction among sustainability investors as well as other institutional investors has been forceful. In an email to White House advisor Valerie Jarrett, the California Public Employees' Retirement System (CalPERS) stated, “This will gut the proxy access provision and is completely unacceptable to responsible long-term investors such as CalPERS. It will make the proxy access provision totally unusable in the case of many major corporations.”

Noting that “the average share holding of the top 10 pension shareholders does not even exceed 1/4 of 1%” in Goldman Sachs, Bank of America, Microsoft, IBM, or ExxonMobil, the CalPERS email encouraged the “Obama administration to publicly oppose the Senate's proxy access amendment imposing a 5% ownership requirement.”

Council of Institutional Investors (CII), an association of pension funds with combined assets of more than $3 trillion, sent an urgent email to its members, encouraging them to “Tell Valerie Jarrett and the Obama administration to publicly oppose the Senate's proxy access amendment imposing a 5% ownership requirement.”

The CII directed its members to call the White House switchboard at 202.456.1414 and request to be connected to Ms. Jarrett's office. Alternatively, members can contact Ms. Jarrett via email at

The CII stated, “By inserting an onerous and unworkable 5% ownership threshold, this amendment would effectively close proxy access to responsible, long-term owners.”

Another corporate governance provision, which was included in the Senate version, would establish a majority voting standard, requiring that nominees for corporate boards of directors receive a majority vote to win a seat. Despite the fact that a majority voting standard is “a basic democratic principle” and “a market-based reform,” according to Peter DeSimone of the
Social Investment Forum (SIF), this provision too appears likely to be removed from a final version of the bill.


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