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August 27, 2010
SEC Adopts Rules for Proxy Access
    by Robert Kropp

Activist shareowners praise the rule that will allow them to nominate candidates for corporate boards of directors.

A victory for shareowner rights that was over 30 years in the making occurred this week, when the Securities and Exchange Commission (SEC) adopted new rules "to facilitate the rights of shareholders to nominate directors to a company's board," according to a press release issued by the Commission.

Under the new rules, shareowners who have owned at least three percent of a company for at least three years will be eligible to have their nominees for boards of directors included in corporate proxy materials. Shareowners will be permitted to aggregate their holdings to meet the three percent threshold.

Application of the new rules to entities defined by the SEC as "smaller reporting companies" will be delayed by three years.

SEC Chairman Mary Schapiro said in a statement at the opening of the open meeting, "Long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own."

"I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfill the responsibilities of serving as a director," Schapiro continued.

The new proxy access rules passed by a 3-2 vote, as Bush nominees Kathleen Casey and Troy Paredes voted against them. In the meeting, Casey stated that the rules will join the Commission's recent ruling on climate change disclosure in the "pantheon of the SEC's poor decisions."

Simon Billenness, member of the Committee on Socially Responsible Investing of the
Unitarian Universalist Association and a shareowner advocate, attended the meeting on Wednesday, and described Casey's remarks as "Hyperbolic and intemperate."

"She seemed to be reading directly from the talking points of the US Chamber of Commerce," Billenness said. "Criticism of the rules as ill-considered, as Casey did in the meeting, is clearly false. Under Mary Schapiro, the agency is taking the input of all parties under consideration. Rulemaking is being done in a measured and consistent way."

"Mary Schapiro is running an agency that works," he continued.

Following the SEC ruling, the
Social Investment Forum (SIF) issued a press release, in which Lisa Woll, CEO of the Forum, stated, "Universal proxy access is a fundamental shareholder right enjoyed in most developed nations around the world, so we are very happy to see the United States achieve parity on this critical market mechanism." spoke with Peter DeSimone, Director of Programs at SIF, who also attended Wednesday's meeting.

"There have been more than three decades of debate over this issue, and it's been on the minds of our members since our founding in 1981," DeSimone said.

Even before the Obama Administration took office, members of SIF wrote to the President-elect, outlining the positions it believed the Administration should take. Included among the recommendations was one that would "enhance access to the corporate proxy ballot so that long-term shareholders have a say in the nomination of corporate directors and in protecting shareholder value."

"Allowing shareholders access to the proxy ballot for purposes of nominating corporate directors will improve oversight, make corporations more accountable and have beneficial effects on long-term financial performance," the letter continued.

DeSimone told, "Even though the SEC felt it had clear legal authority, the thought was that without a clear recognition in legislation there would be a fierce legal battle. So the SEC sat on it until the financial reform bill allowed it to proceed with confidence."

"Of course, the Chamber of Commerce is still considering a lawsuit over this," he continued.

Warning that trade union pension funds now have "the ability to hold the board hostage on narrow issues," the Chamber stated that it is considering legal action as part of its effort to "continue to fight this flawed approach using every method available."

On the other hand, Ann Yerger, executive director of the
Council of Institutional Investors (CII), stated, "Access to the proxy will invigorate board elections and make boards more responsive to shareowners and more vigilant in their oversight of companies."

"The final rule reflects the SECís thorough, year-long review of extensive public comments and a careful balancing of investor and corporate interests," a
press release from the CII stated.

Asked about his assessment of the details of the SEC ruling, DeSimone said, "We would have preferred if the ownership threshold for large companies was left at one percent, and the holding period at one year. Three percent is a compromise. It's doable but makes it more difficult for institutional investors. It might be too tough, and if that's the case we'll press the SEC to reconsider."

"We were surprised by the three-year holding period," DeSimone continued. "But we've always said that this right should be preserved for long-term shareholders, and the holding period will ensure that only long-term shareholders are at the table."

"We're going to monitor implementation very closely, but we're pleased that progress has been made this week," he said.

"The SEC under Mary Schapiro is an agency that is not afraid to develop significant new rules," Billenness told "After many years, and many failed attempts, a proxy access rule has finally been adopted. This is not only a victory for shareholder rights, but will be an important tool for shareholders to hold companies accountable."


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