What Shareholder Proposals on Proxy Access Tell Us about Its Value

Abstract

For many years, the default rules of corporate and securities law have provided the board of directors (Board) with exclusive authority to decide whether shareholder proposals on proxy access, the ability of certain privileged shareholders to have their own slate of director nominees included in a public company's proxy solicitation materials for purposes of voting at the annual meeting, are to be included in a public company’s proxy solicitation materials. However, five years ago, the Securities and Exchange Commission (SEC) amended its rules to allow such proposals to be included whether or not the Board approves. The proposals usually limit the availability of proxy access to large institutional shareholders who have held at least three percent of company shares, individually or as an aggregation of 20 to 25 investors, for at least three years. Roughly 200 companies received proxy-access proposals in 2016. Shareholders need to be informed about the value of proxy access prior to voting on such proposals. Boards also need to be informed about its value prior to deciding whether it should amend its governing documents to include proxy access, either for purposes of preempting a shareholder vote or considering its implementation subsequent to such a vote at the annual meeting. The SEC needs to be informed about this value prior to making any changes to its proxy access rules, including revisiting the idea of mandatory proxy access for all public companies. One way to understand the value of proxy access is through empirical analysis of the shareholder proposals on proxy access that have already been submitted for inclusion in the proxy materials of public companies. Unfortunately, the empirical evidence so far tells us very little about this value. This is a critical point that shareholders, board members and the SEC need to understand when empirical evidence is provided as support for or against proxy access.