Council of Institutional Investors The Voice of Corporate Governance

Proxy access allows shareowners to place their nominees for director on the company’s proxy card. In the United States, unlike most of Europe, public companies are not required to provide shareowners with access to the proxy to nominate directors. The only way that shareowners can present alternative director candidates at a U.S. public company is by waging a full-blown election contest. For most investors, that is onerous and prohibitively expensive.

Why proxy access matters  The Council believes that a measured right of access is imperative. Directors are the cornerstone of U.S. corporate governance. Their job is to monitor management in the best interest of the company’s shareowners, whom they represent. Since the primary role of shareowners is to elect and remove directors, it makes sense that investors get a fair crack at running their own candidates without having to leap formidable financial and procedural hurdles. Weak director elections can breed complacent boards that take a minimalist approach to their oversight duties. If directors knew there was a good chance that they could lose their board seats in a contest, they might be more inclined to monitor and rein in a CEO who is pursuing an excessively risky strategy, and make sure that executive incentive pay is strongly tied to corporate performance.

Permitting shareowners to nominate candidates for director on the company's proxy card would invigorate board elections and would make boards more responsive to shareowners, more thoughtful about whom they nominate to serve as directors and more vigilant in their oversight of companies.

Proposed access rules  Over the years, the Securities and Exchange Commission (SEC) has considered different paths to proxy access. In 2003, the commission proposed giving all shareowners of U.S. public companies the right to nominate candidates for director in certain circumstances. The business community opposed the measure vigorously and the SEC eventually shelved it.

In 2006, a court ruling called into question the SEC's long-held determination that companies could exclude shareowner proposals relating to the election of directors.  As a result, in July 2007, the SEC proposed two conflicting proxy access initiatives: One would have definitively allowed companies to exclude proxy access shareowner resolutions from proxy statements, the other would have permitted an owner, or group of owners, that held 5 percent of a company’s stock for at least a year to propose changes in the company’s bylaws governing how directors are elected. The Council opposed both proposals. But on November 28, 2007, the SEC voted 3-1 to let companies reject shareowner proposals that relate to board nominations or elections

SEC Chair Mary Schapiro, who took office in January 2009, has breathed new life into the campaign for proxy access. On May 20, 2009 commissioners voted 3-2 to propose rules that would require companies to place shareowner board nominees on company proxy ballots and to include shareowner proposals on proxy access--binding or advisory--on proxy ballots, too.  The SEC released the text of those proposals on June 10, 2009.  The Council submitted a comprehensive comment letter to the SEC on August 4 (see below). 

"Private ordering"  On December 14, the SEC announced it was reopening the comment period for another 30 days to consider additional data and analyses submitted after the original comment period ended. In particular, the SEC asked for comment on the idea of a "private ordering" approach to proxy access, in which companies and/or shareowners would be able to opt out of a federal access rule.  The Council opposes private ordering.  A rule that provides for a proxy access opt-out would permit public companies to continue to deny their shareowners the fundamental right to nominate and elect directors. The Council commissioned, jointly with ShareOwners.org, a white paper on private ordering that found serious drawbacks with this approach.   A second Council second comment letter on proxy access, filed on January 14, 2010, reiterates the Council's support for a uniform federal access rule that would apply to all U.S. public companies..

Legislation on proxy access  In 2009, Senator Charles E. Schumer (D-N.Y.) and Rep. Gary C. Peters (D- Mich.) each introduced legislation that would permit shareowners to place their nominees for board seats on company proxy ballots.  The Wall Street Reform and Consumer Protection Act of 2009, a comprehensive financial regulatory reform bill the House of Representatives approved on Dec. 11, 2009, includes a provision affirming the SEC's authority to issue proxy access rules.  The Senate discussion draft reform legislation includes similar lanaguage.

To view the Council's policy on proxy access, please visit the Council Policies page. The policy is sectiton 3.2 of the Corporate Governance Policies.

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