A group of shareholder rights advocates is urging the U.S. SEC to rescind its plan to be more selective in weighing in on corporations' requests to block shareholder resolutions.
The SEC's Corporation Finance Division announced in early September that starting with the next proxy season, which begins to ramp up at the end of each year and extends through the following spring, staff may opt to respond to some requests orally rather than in writing. Moreover, staff may also not answer every request as had been its practice until now. Staff said the move should help free up its time to provide the kind of in-depth clarifications about its general policies on shareholder resolutions that industry and shareholders have sought.
But shareholder advocates are worried that the new policy could tip the scales in favor of companies, prompt more litigation and generally make the process less transparent. The groups reiterated most of those concerns in a Sept. 19 letter to the SEC.
"We request the division rescind this change in process, as it reduces transparency and accountability, increases the burden on investors, and could increase conflict between companies and their investors," said the letter signed by officials from the U.S. SIF, Interfaith Center on Corporate Responsibility, Ceres, Council of Institutional Investors, and the Shareholder Rights Group.
"Most retail shareholders who choose to file a proposal have long relied on the SEC to protect investors by enforcing the agency’s rules," the letter continued. "Although the absence of ... a decision does not technically preclude later enforcement action by the SEC, one might infer that when staff 'declines to state a view;' the staff might also decline to recommend enforcement [against the company] if the proposal is excluded."
As a result, the burden of enforcing the commission's rules will fall on the shareholders who proposed the resolutions and "who may have to resort to litigation to enforce the rule," the letter said.
If the agency does not rescind the policy, it should at least clarify that the policy will be deployed on a few "pilot decisions until the implications" of the policy are better understood, the advocates said. The commission should also establish clear criteria for how the policy will be deployed and signal "a clear and routine time limit on when the 'no-determination' option will be taken."
The letter cited a Sept. 11 article by S&P Global Market Intelligence in which a staffer said the division will signify online, in some manner, when it applies the policy. In the letter, the shareholder advocates further requested "that any correspondence from the proponent’s perspective, as well as the issuer’s request, be posted online with the statement of disposition."
Lastly, the letter urged staff to have processes in place for rendering decisions orally. For instance, staff could hold a conference call in which all parties can hear the same presentation. Also, staff could consider allowing an audio recording of such a call, the groups said.
