Why Proxy Access is Harmful to Corporate Governance
Journal of Corporation Law, Vol. 37, No. 2, Winter 2012
27 Pages Posted: 28 Jun 2011 Last revised: 5 Mar 2012
Date Written: February 24, 2012
Historically, the SEC has allowed public companies to exclude from their proxy materials shareholder proposals for the nomination of directors by shareholders. This rule has allowed the nomination of directors to remain under the control of the board of directors and its nominating committee. However, under amended Rule 14a-8(i)(8), shareholders will now be able to include proposals on proxy access in a public company’s proxy materials. Public companies can now expect to receive such proposals for inclusion in their proxy materials for the 2012 proxy season.
When voting on proxy access proposals, shareholders need to understand that proxy access is a fundamentally flawed tool of accountability. That is, it is a very inefficient means to promote good corporate governance in a public company. As argued in this article, it is expected that proxy access will lead to increased error in the nomination of directors as decision-making is moved from the board of directors to shareholders who will make their nominations based on significantly less information and a shifting of the potential for certain opportunistic behavior, such as the extracting of private benefits from the corporation, from an independent board and nominating committee to certain shareholders who, unlike directors, are not subject to fiduciary duties. Such an argument also makes the case for the SEC not to waste its resources on revisiting the idea of mandatory proxy access.
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