Shareholder Proxy Access: An Idea Whose Time Has Not Yet Come

On several occasions during recent years, the SEC has sought to amend its proxy rules to provide shareholders with access to company proxy materials for the purpose of nominating individuals for election as directors in opposition to management-backed candidates. The SEC has been motivated by its concern that the Federal proxy rules may not enable shareholders to exercise fully their state law rights to nominate director candidates. Under current SEC rules, shareholders who wish to nominate director candidates in opposition to incumbent directors must clear with the SEC and distribute to shareholders proxy materials in support of their candidates. Although web-based solicitations have made this process somewhat more shareholder-friendly, running a proxy contest remains a relatively complicated, time-consuming and expensive undertaking, pursued for the most part only in connection with hostile takeover bids or by well-heeled, motivated investors. At least a majority of the current SEC Commissioners believes that the inability of shareholders to access company materials to nominate opposition candidates gives a real advantage to incumbent directors and represents a “failure of the proxy process” that has negatively impacted the state law right of shareholders to nominate and elect directors.

Despite the SEC's efforts over the past decade to implement proxy access, each attempt has been thwarted for a variety of reasons, leaving proxy access in a seemingly perpetual state of limbo. One key factor that has hampered the adoption of proxy access has been the concern that the SEC, as an instrument of the Federal government, is not empowered to institute rules so directly impacting the election of directors, an area traditionally reserved for the states. In part to address this concern, included in 2010's Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was an authorization for the SEC to impose proxy access on publicly traded corporations. However, when a Federal court invalidated a new rule adopted by the SEC pursuant to the Dodd-Frank authorization, the effort to mandate proxy access on a company-wide basis was once again put on hold.