Access denied! Competing board candidates on one proxy card? Let's untwist this analytical pretzel.

• Author: Kaback, Hoffer
• Position: Quiddities

SHOULD SHAREHOLDERS have the right to compel inclusion in the company's proxy statement of their own slate of director-candidates?

I am not referring to traditional contests waged through a separate, dissident proxy statement or situations where a particular shareholder or group of shareholders is empowered, by contract, to designate directors and to have them presented, as part of the company's official slate, in the proxy statement. (Example: preferred shareholders who possess such a right as a class if preferred dividends are in arrears.)

No, I am referring to giving common shareholders, in the ordinary course, the right to make nominations for the board and to have those nominees included in the (one and only) company proxy statement and proxy card, notwithstanding that such candidates would be running against the director-nominees endorsed by the company (acting through its nominating committee and full board).

This possible dramatic reformation of the proxy landscape is on the SEC's table as I write in mid-June; by August, the Commission may already have acted.

Many would say, "It's about time." After all, isn't the current system of presenting the shareholder-electorate with one "official" list of nominees Stalinesque? Shouldn't all candidates running be presented on the same ballot? Shouldn't there be equal access to the voting machinery?

Maybe not. Now, of course, the current procedure is hardly without infirmities. Two and one-half years ago in "The Albanian Candidate" (Winter 2001), I analyzed some of them, emphasizing the (a) dearth of information about candidates and (b) lack of opportunity for shareholders to question and evaluate them (through, say, audio or video conferences). The changes along those lines I there urged, however, are different from the SEC's mandating that a dissident proxy statement (and slate) should be melded with the company proxy statement (and card) on demand of an X% shareholder.

There is first of all the question whether the SEC (a federal administrative agency) possesses the authority to effect such a substantive recasting. Electing directors is a matter of state law; the federal '34 Act (from which the proxy rules are derived) was never intended to be, and is not, federal corporation law. (There is no federal corporation law.)

Martin Lipton, a modern giant of American corporate practice, is not bashful about pointing out other possible problems, too. He asserts (in an April 23 memo to clients)...