'Access denied!' redux: the SEC is poised to act. Maybe.

• Author: Kaback, Hoffer
• Position: QUIDDITIES

SHOULD SHAREHOLDERS be given the right to have information about their own slate of director-candidates included in the company's proxy statement?

Readers experiencing deja vu can be assured that that sensation is fully warranted.

For this issue of proxy access is decidedly familiar, having been the subject of not inconsiderable attention several times during the last 30 years and, most recently, in 2003. An SEC proposed rule mandating it was actively promoted (and actively opposed) during much of that year. Most observers anticipated that resolution of the matter would occur before the end of 2003 through the adoption of a final rule requiring access.

Several of the infirmities of the 2003 proposal were analyzed in my column "Access Denied!" (Summer 2003). Undoubtedly, SEC adoption of a proxy access rule based principally on that proposal would, in short order, have been challenged in court.

That "round two" never happened. The SEC did not finish "round one"; it did not adopt any new rule. Its 2003 proposal withered and died.

But it was not forgotten. The SEC is now formally reconsidering the issue.

It is, though, doing so in an unusual manner. The agency issued two Exchange Act Releases (Nos. 34-56160 and 34-56161, each dated August 3, 2007). Each reflects a quite different legal and governance approach. Indeed, they are inconsistent. Moreover, each release sets forth proposed amendments to the proxy rules very different from the 2003 proposal. (The latter directly involved shareholder nominees; the new proposals are less direct in that they relate to putting forward bylaw amendments that would affect future elections.)

For example, in Release 34-56161 (let's call it the exclusion release), the SEC proposes to amend the proxy rules to permit exclusion (from the company's proxy statement) of a shareholder proposal if it "relates to a nomination or an election for membership on the company's board ... or a procedure for such nomination or election." The exclusion release makes clear that the word "procedures" here refers to procedures that result in a contested election, either in the year in which the proposal is submitted or thereafter.

In stark contrast, in the other (inclusion) release, the SEC sets up a mechanism to permit inclusion in the company's proxy statement of shareholder proposals for bylaw amendments pertaining to director nomination procedures.

The issuance of the releases follows a series of roundtables the SEC held in May...