Playing Board Games: An Analysis of the Federal Proxy Access Rules and Why Such a System is Ultimately Unnecessary

Abstract

This paper sets forth the history and policies underlying the debate over proxy access - a system that would permit shareholders meeting certain criteria to include a director candidate directly on a corporations ballot. Such a system, it is argued, would reduce the cost burden associated with running director candidates against management incumbents. In turn, corporate elections would provide shareholders with the voice they believe they are entitled to under a theory of corporate democracy, and which the current system does not provide. This paper analyzes the arguments on both sides of the perennial proxy access debate in light of Dodd-Frank's explicit authorization of proxy access rule-making authority and the SEC's subsequent exercise of that authority. The conclusion that a federal proxy access rule is ultimately unnecessary stems from the following: a director-centric model of the corporation more accurately describes the modern corporation and is preferable to greater shareholder power; the increase in institutional ownership of corporations and the attendant rise of proxy voting and advisory services creates risk that proxy access rules would not be utilized for their intended purposes; and existing mechanisms adequately promote shareholder involvement in corporate governance.