Critics of Access and Congressional Action: The Boomerang Effect

As Congress moves forward on financial reform, one things seems certain.  The SEC will get the rulemaking authority to allow shareholders access to the company's proxy statement for their nominees. 

It is clear that this is the result of critics of access, particularly those that threatened to challenge the SEC's rulemaking authority in the area.  Few were as strident on the issue as the Chamber of Commerce.  The Chamber all but threatened to sue the agency if it adopted the rule.  See Update On Shareholder Access, Shareholder Bill Of Rights And Other Washington Efforts On Corporate Governance, Thomas Quaadman, U.S. Chamber of Commerce, Oct. 4, 2009 ("This is the third time in six years that the SEC is considering implementing shareholder access. While previous efforts have failed, this comment period has proven to be no less controversial. Proponents of shareholder access are quietly confident that the third time is the charm, however, history and potential legal challenges may prove them wrong.").

The challenge to rulemaking was never very strong.  It mostly arose out of the DC Circuit's decision in Business Roundtable that struck down the SEC's attempt to impose one-share, one-vote, on the stock exchanges.  Access, in contrast, merely involved disclosure, something well within the SEC's authority.

Nonetheless, the threats likely contributed to the decision of Congress to include access in the financial reform process.  Once adopted, the litigation threat will disappear.  More to the point, the legislation will allow the Agency to be more decisive in the exercise of its authority.  Had authority been unclear, even marginally, the Commission might have taken an approach to the rule that was designed to reduce the risk of legal challenge.  This might have resulted in higher ownership thresholds or longer time limits, making access less useful.

Congress is about to take away the litigation risk.  Critics of access are to be thanked for the development.