As a kind of denoucement to the BofA, we note an opportunity lost.

According to an editorial in the WSJ, the SEC tried, in connection with the proposed settlement with BofA, to get the Bank's agreement to provide shareholders with access to the company's proxy statement for nominees.  The Bank refused and it did not make it into the settlement.  The editorial, however, described the efforts this way:

• According to a Bloomberg report on Thursday, the SEC chairman or her staff also wanted BofA to change the way it runs proxy elections for seats on the company's board. The chairman's office called for BofA to embrace "proxy access." This is the buzzword for allowing special-interest groups like union pension funds to promote dissident board candidates in the company's own proxy materials, even if these interests own as little as 2% of the company.

This comment warrants a response.  It is an attempt to use scare tactics in place of analysis. 

First, the comment suggests that access will unleash special interest groups, particularly, apparently, unions.  We wonder in fact how many union pension plans will actually nominate directors.  Indeed, we wonder how many union pension plans own more than 2% of the shares of a large public company, the apparent threshold for submitting a nominee.  Thus, for example, the institutional ownership of ExxonMobile shows no unions among the top ten institutional investors (with the tenth largest owning under 1% of the company's stock). 

Second, "special interest," whatever that means exactly (beyond union nominated directors apparently), is a pejorative slap at the identity of the shareholder nominating the director.   It ignores the fact that it is not the nominating shareholder who is elected to the board but the nominating shareholder's candidates.  Even if a nominating shareholder fits within someone's definition of "special interest" (a definition that will likely vary depending upon the background of the particular critic), their candidates for the board will only win if they can convince enough of the other shareholders of the candidate's superiority over those nominated by management.  And, in this battle, management had a decided advantage.  It can use the corporate treasury to convince shareholders not to elect the insurgent candidate.

In other words, its not about the identity of the nominating shareholder.  Its about the right of shareholders to choose among competing candidates rather than be forced to accept, without meaningful choice, those nominated by management.  Those raising the "special interest" shibboleth are effectively trying to prevent shareholder choice by preventing the nominations in the first instance.   Ought it be that a decision is better made by the shareholders based upon the relative qualifications of the candidates?  

Finally, the use of the "special interest" rubric also ignores the fact that the phrase rightfully ought to apply with equal strength to management nominated directors.  These are directors who are nominated by management and often have preexisting ties with the CEO.  They are likely, as we have written often on this blog, to have a predisposition in favor of the CEO.  

The irony in all of this in the end is that had access been included in the proposed settlement with BofA, the likely result would have been no change in the board and no increase in nominations by shareholders for the board.  Even with access, shareholders still must incur expense in connection with the proxy contest, something that discourages nominations.  In fact, the only two companies with access bylaws (Cryo-Cell and Comverse) have yet, as far as this Blog knows, to receive a shareholder nominee.

For more on this topic, see The SEC, Corporate Governance, and Shareholder Access to the Board Room.