The Act also grants to the Commission the authority to provide shareholders with “access” to the proxy statement.  The Commission almost certainly has the authority already but because business organizations have threatened to challenge any access rule in court, Congress has moved ahead to clarify the authority and cut off resort to judicial challenge.  In one of those examples of “be careful what you wish for,” the threats to challenge access will likely result in a substantially strong regulatory hand by the Commission.

Section 972 would amend Section 14(a) of the Exchange Act to allow the Commission to adopt rules that would require any solicitation to include shareholder nominees.  Moreover, within 180 days of enactment, the Commission “shall issue” rules that provide for access “under terms and conditions as the Commission determines are in the interests of shareholders and for the protection of investors.”

The provision warrants several observations.  First, it applies to all public companies, not just those listed on an exchange.  Second, the mechanism for imposing the obligation is a rule of the Commission, not listing standards.  As such, it is likely to be easier to enforce.  There is not, for example, a mandatory opportunity to cure.  Third, unlike the Shareholder Bill of Rights, the provision does not purport to limit the Commission’s authority by establishing minimum ownership or tenure requirements as a precondition for submitting a nominee.  The Commission gets almost unlimited discretion in the provision to do as it deems fit and establish the thresholds wherever appropriate. 

The proposed legislation demonstrates the short sightedness of those who have opposed access in every shape or form.  Recall that the last Commission under Chairman Cox proposed a ludicrously unfavorable form of access.  Shareholders who owned 5% or more of the company’s voting shares would be allowed to propose a bylaw that if it were adopted would allow for access.  This form of indirect access that would likely almost never be approved by shareholders was too much for those opposing access, including Commissioners Atkins and Casey.  Had they agreed to this approach, one has to wonder whether Congress would have under consideration a proposal to mandate direct access and to give the SEC almost unlimited discretion in determining the parameters of any such right. 

In the meantime, the bill and a summary are posted at the DU Corporate Governance web site.

SEC. 972. PROXY ACCESS.

(a) PROXY ACCESS.—Section 14(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78n(a)) is amended—

(1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and

(2) by adding at the end the following: 

(2) The rules and regulations prescribed by the Commission under paragraph (1) may include—

(A) a requirement that a solicitation of proxy, consent, or authorization by (or on behalf of) an issuer include a nominee submitted by a shareholder to serve on the board of directors of the issuer; and

(B) a requirement that an issuer follow a certain procedure in relation to a solicitation described in subparagraph (A).

(b) REGULATIONS.—Not later than 180 days after the date of enactment of this Act, the Commission shall issue rules permitting the use by shareholders of proxy solicitation materials supplied by an issuer of securities for the purpose of nominating individuals to membership on the board of directors of the issuer, under such terms and conditions as the Commission determines are in the interests of shareholders and for the protection of investors.