by Cydney Posner
As noted in TheCorporateCounsel.net blog, New York City Comptroller Scott Stringer has once again submitted, on behalf of a number of NYC pension funds, a raft of shareholder proposals for proxy access as part of the Comptroller’s continuing Boardroom Accountability Project. The list of the 72 companies targeted this year includes 36 companies that received proposals last year but had not yet enacted, or agreed to enact, proxy access bylaws “with viable terms.” Notably, Stringer views companies that enacted bylaws requiring 5% ownership as “unworkable.” The 2016 list also includes 36 new companies, “with a focus on the funds’ largest portfolio companies as well as coal-intensive utilities, board diversity laggards and companies with excessive CEO pay.” Following submission of the proposals by the Comptroller, 15 of the 72 companies enacted, or agreed to enact, 3% bylaws, and the proposals were then withdrawn at those companies.
The Boardroom Accountability Project was initiated last year, when Stringer submitted proxy access proposals to 75 companies. The form of proposal was similar to the SEC’s rules that were vacated in court, requiring a threshold of 3% ownership for three years, with shareholders having the right to nominate up to 25% of the Board. (See this PubCo post.) Stringer views the campaign as having been “enormously successful: two-thirds of the proposals that went to a vote received majority support and 37 of the companies have agreed to enact viable bylaws to date.” The press release notes that, since November 2014, the number of companies that have adopted proxy access “has increased from 6 to 115, an unprecedented rate of adoption for shareowner-driven initiatives.” Stringer has previously characterized the proxy access initiative as having “passed the tipping point….It’s no longer a question of ‘if’ as much as it is ‘when.’”
You might recall that the SEC mandated proxy access for all public companies in 2010. That rulemaking followed a very long and controversial history of efforts by the SEC to require proxy access. The SEC debated whether to institute proxy access in 2003 and 2007, but no rules were adopted. Fueled by concerns stemming from the economic crisis, in 2009, the SEC finally introduced a proxy access rule. (See this news brief.) The debate over proxy access was highly contentious, with proponents of proxy access emphasizing the need for accountability of boards, the importance of fair representation, implementation of shareholder rights under state law, the potential for improvements in director qualifications and board independence and other corporate governance benefits. On the other side, opponents raised concerns that shareholder-nominated directors could impede the proper functioning of companies and the collegiality of boards, cause inefficiencies, politicize board elections, represent only narrow single interests, make decisions that might not reflect the long-term interests of all shareholders or deter qualified directors who may be less than enthusiastic about facing an election contest.
The rule was successfully challenged by the U.S. Chamber of Commerce and The Business Roundtable, with the Court concluding that the SEC acted “arbitrarily and capriciously” in issuing the rule when it failed to provide an adequate cost/benefit analysis. The WSJ characterized the opinion as a “sharp rebuke to the SEC, marking the fourth time in recent years the same court has thrown out an SEC rule based on similar grounds.” (See these news briefs.) At that point, the SEC elected not to contest the ruling (see this new brief), and left it to companies and their shareholders to decide, through “private ordering,” whether to adopt proxy access and what the form of that access would be. (See this news brief.) Interestingly, for several years after the rule was invalidated, there were a number of shareholder proposals for proxy access, but the anticipated flood of proposals had never really materialized until the NYC Comptroller began to submit proposals in 2015.