US - The Securities and Exchange Commission's decision not to challenge a US court's ruling overturning a proxy-access rule has provoked criticism from the Council of Institutional Investors.
Ann Yerger, executive director of the Council said, "The SEC's decision not to request an en banc rehearing of the D.C. Court of Appeals' opinion is disappointing to shareowners.
"The Council will continue to advocate for proxy access because it is a fundamental right of shareowners to have a meaningful voice in the election of directors to public company boards. Proxy access would invigorate board elections and make boards more responsive to shareowners and more vigilant in their oversight of companies."
The rule, which would have allowed investors to nominate their own candidates for company boards, was approved by the SEC in August. It was
challenged shortly afterwards by the US Chamber of Commerce and the Business Roundtable, who argued the SEC did not take into account the financial implications of the rule. (Global Pensions; 30 September 2010)
The courts agreed, saying the decision to apply the rule to companies was "arbitrary". (Global Pensions; 25 July 2011)
While the original rule requiring all public companies to include shareholder nominees in company proxies was overturned, a related rule allowing shareholders to seek proxy access standards on a company-by-company basis, will remain.
Yerger urged the SEC to address the court's concerns and re-propose a rule that she believes sets "uniform standards and requirement for proxy access at all US companies". The Council represents pension funds, foundations and endowments with over $3trn in assets.
Mary Schapiro, SEC chairman she remained committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards.
"I want to be sure that we carefully consider and learn from the Court's objections as we determine the best path forward. I have asked the staff to continue reviewing the decision as well as the comments that we previously received from interested parties," she added.
Industry watchers say the SEC's decision did not come as a surprise.
Michael Littenberg, partner at law firm Schulte Roth & Zabel said: "There were three judges that came out very strongly against the SEC. The SEC knew that they would be up against three judges if they contested the rule and they knew that they didn't stand a great chance."
He believes most companies won't be affected and only those with perceived governance issues will be likely targets.
"As has been the case with other governance initiatives, it is likely that a fairly small number of mostly larger companies will receive access proposals in 2012, with these types of proposals continuing to be refined and momentum picking up in 2013 and beyond as a market standard starts to develop."
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