Reform Deferred at SEC…For Now
The “new” SEC under Chairman Mary Schapiro is certainly being extra careful about instituting meaningful investor reform measures following the financial crisis.
In the past week alone, the new chair reportedly delayed until November a full commission vote on granting shareholders easier access to the proxy ballot to replace directors so SEC staff could read through the more than 500 comment letters. Then, on Monday the SEC’s Investor Advisory Committee (IAC) deferred until February a vote to recommend that the commission issue more guidance on the “applicability of Regulation FD regarding communication between companies, directors and shareowners.”
The decision on the proxy access rule (officially known as S7-10-09) did grab the headlines in the financial press (Bloomberg, Oct. 2) since it meant that there is a good chance that institutional investors, hedge funds and other shareholder groups would not be able to run effective campaigns against incumbent directors in the 2010 proxy season. In this case, maybe expediency isn’t more important than substance. Nearly four months after the SEC proposed the rule, the commission doesn’t seem to be in a position to bring it to a vote. The IAC only held its first meeting Monday, and that 18-person body was designed to advise the commission on matters concerning investors.
Of the committee’s three subcommittees – Investor Education, Investor as Purchaser and Investor as Owner – it is the latter headed by Stephen Davis (executive director of Yale University School of Management Millstein Center for Corporate Governance and Performance) that has the biggest wish list. In addition to proxy access, the subcommittee plans to tackle majority voting, the role of proxy firms, collective actions by investors, the need for an independent chair, executive compensation and compensation consultants, and international financial reporting standards.
“Our purpose is to look at what happened over the last two years regarding the crisis and to see how the SEC is equipped to deal with this,” Davis told the IAC Monday. While Davis’ panel understands it has a full plate, it is being careful not to act in haste on any issue.
“We decided if we acted now on majority voting, it could muddy the waters on proxy voting (access),” he said. “We really need to know what the SEC’s view is on majority voting first.”
But it was the full committee’s reluctance to even vote on the Regulation FD guidance resolution that seemed a bit troubling for investors. The failure to even vote on whether there was a consensus for such an innocuous measure could be ominous. The main reason for the guidance request were July 15 comments made by Schapiro at the International Corporate Governance Network (ICGN) annual conference in Sydney, Australia. She said Regulation FD does not restrict communications between companies and shareholders, but rather restricts selective disclosures of “material non-public information.”
In addition to Schapiro’s comments, another reason the subcommittee took up the issue is that general counsel are telling directors they are precluded from discussing company governance unless they discussed it with all the shareholders. There is a belief that some public companies are using Regulation FD to avoid reaching out to shareholders.
Davis must have been a bit surprised by the committee’s actions since he wrote in his Compliance Week column (Sept. 15-membership required) that “the investor committee may further request boilerplate guidelines that corporate and shareowner lawyers can use to ensure that director discussions with owners stay within Reg FD boundaries…There’s no reason to expect the SEC to do anything other than happily oblige. At that point, Reg FD should once and for all go away as an obstacle to talking.”
- Gary Larkin