Unmentioned in the non-access release, but a big part of the Chairman's statement was the concern that, absent Commission intervention, the potential for abuse by shareholders, particularly "off shore hedge funds."  The concern is belied by the impracticality of access proposals.  In the words of The Economist (Dec. 1, 2007):  "This is nonsense." 

Even if proposed by an "off shore hedge fund" with nefarious motives, they do not provide access to the board until a year later, an unlikely tool for investors with "short term" perspectives.  More importantly, the concern is belied by the practice.  In the 2007 proxy season, only four companies received access proposals, with one passing, two losing, and one being withdrawn.  As the Economist noted:  "What are American bosses [and presumably the SEC] afraid of?"

Other evidence, however, indicates the contrived nature of the concern.  Take a look at the data on majority vote provisions.  Under most provisions, directors who do not receive a majority of votes must resign.  One would imagine that these provisions would likewise be tempting to irresponsible short term investors, enabling them to target indolent directors who reject their value enhancing proposals. 

But, in fact, it hasn't worked out that way.  It's not that activist shareholders aren't pushing majority vote provisions.  They are.  According to data prepared by Claudia Allen from the firm Neal, Gerber & Eisneberg, more than 150 majority vote proposals were filed in 2006 and 2007, many by activist shareholders.  But once they are in place, successful challenges to directors are rare.  Again, according to Allen:  

• "in 2007 only one director received a majority against vote at a company with majority voting.  Mae Jemison, an incumbent director at Gen-Probe, Inc., received a majority against vote based upon her failure to attend at least 75% of board meetings held in 2006.  After consulting with ISS, the board declined to accept her resignation, with the understanding that the attendance issue would be addressed."

In other words, while shareholders may support majority vote provisions, they do not automatically favor the use of the authority to remove directors.  And in the one case where they did it was over an objective concern, meeting attendance. This suggests that even if "activist shareholders" make access proposals and the proposals pass (an unlikely proposition), the likelihood that contests will result and, in the event of contests, management will lose, is at best modest. 

The threat to the board room of access proposals, particularly those submitted by off shore hedge funds, is overblown.  There is no evidence that access proposals will become common; no evidence that when they are made they will be adopted; no evidence that if put in place, they will result in a significant increase in election contests; and certainly no evidence that they will result in the defeat of management candidates for the board in any significant numbers. 

The majority vote provisions show that "shareholder activists" do not want to incur the costs associated with a campaign to displace particular directors.  The same is likely true with access proposals.  It will likely be very expensive to elect a shareholder director even if the nominee appears in the company's proxy statement.  Most shareholders will not want to incur the cost. 

While all of this is speculation and extrapolation from other circumstances, the Commission could have helped matters by leaving things alone for another year, providing an opportunity to amass data on actual practice.