The Cox Commisson and the Legacy of Anti-Shareholder Bias: In re Intech Investment Management (Introduction)
By now it is clear that the Commission under the prior Chairman tied the hands of enforcement, interfering with the Division's ability to perform its function. Certainly this was the point of an article in the Washington Post (In Cox Years at the SEC, Policies Undercut Action).
But perhaps the most damaging legacy was the prior Commission's record when it came to corporate governance. The Agency sat on reforms of NYSE Rule 452 (broker votes in director elections) and affirmatively denied shareholders access to the company's proxy statement for their nominees (the short sightedness of which will become increasingly clear as the Commission moves forward on that issue).
A residual of that approach could be seen in a recent case brought by the Commission against an investment advisor. Although finished under Schapiro, the case was almost certainly initiatied under Cox. In In re Intech, Investment Advisers Act Release No. 2872 (admin proc May 7, 2009), the Commission opted to penalize an investment adviser that maintained a pro-shareholder voting record.
The voting patterns for advisors are a problem. Many simply back management irrespective of the merits. This is particularly true where the pension plan is controlled by management, irrespective of whether the voting pattern is in the best interests of the plan beneficiaries. Despite these concerns, the Commission under Cox managed to single out an advisor who happened to vote in a pro-shareholder manner. As with the former Chairman's demonization of "off shore hedge funds," the case reflects an anti-shareholder approach of the prior Commission. With that in mind we turn to the case over the next several posts.
We will spend a couple of posts examining the case.