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June 28, 2010
Proxy Access Survives Conference Committee
    by Robert Kropp

In response to widespread objections that a proposal to increase ownership thresholds would effectively "gut proxy access," House and Senate conferees retain provision that gives the SEC authority to set thresholds.

Last week, as negotiations among House and Senate conferees over a final draft of financial regulatory reform legislation went down to the wire, reports surfaced that Senator Christopher Dodd of Connecticut, the Senate Banking Committee Chairman, had proposed a change in the provision for proxy access outlined by the Securities and Exchange Commission (SEC) in June 2009.

Under the SEC's Rule 14a-11, the thresholds for shareowner proxy access are those that have been widely supported by the sustainable investment community. 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.

Dodd claimed that in order to gain 60 votes in the Senate, the proxy access proposal that had passed in both chambers of Congress would have to be scaled back. Instead of requiring a one percent threshold of ownership in major corporations in order to nominate directors, Dodd proposed that the threshold be raised to five percent.

In response, the California Public Employees' Retirement System (CalPERS) called Dodd’s proposal "completely unacceptable to responsible long-term investors," and the Council of Institutional Investors (CII) called on its members to publicly support the SEC's proposed version of proxy access.

Writing in the
New York Times, Harvard Law School Professor Lucian Bebchuk argued that "arrangements increasing directors' insulation from removal are associated with lower company value and worse performance," and that if the "proposed amendment were adopted, the legislation's proxy-access provisions would not only fail to produce significant benefit but would likely make shareholders worse off."

Representative Barney Frank of Massachusetts, the leader of the House conferees, also opposed Dodd's proposal, and on the eve of the final vote Senator Dodd agreed to its withdrawal. The conferees agreed to the wording of the provision as originally passed by both chambers, which would explicitly grant the SEC authority to establish thresholds for proxy access by shareowners.

The bill is expected to come up for a final vote this week.


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