Last week, the Chamber of Commerce promised to launch an “all-out lobbying effort” against a Securities and Exchange Commission proposal implementing “proxy access,” which would even the playing field for shareholders looking to elect members to a company’s board of directors. And like so many of the Chamber’s recent campaigns, it seems that this one will be centered on raising the spectre of a government assault on capitalism that will destroy the economy. As Thomas Quaadman of the Chamber’s Center for Capital Market Competitiveness said:
If these proposals come to fruition, we will see a federalization of corporate law. It also represents an unprecedented takeover of our markets by the government…Some large activist investors (particularly union pension funds) see SEC-mandated proxy access as an important tool to get more leverage in the boardroom to push a political agenda. From our vantage point we believe that these misguided proposals will harm the American economy and constrain the ability of the business community to create jobs.
According to the Chamber, cap-and-trade, regulating greenhouse gases, the Employee Free Choice Act, creating a consumer protection agency, and health care reform are all going to wreck the economy, and proxy access now needs to be added to the list. But far from economic Armageddon, proxy access would return a bit of accountability to America’s system of corporate governance.
As I pointed out at New Deal 2.0, the current structure of corporate elections discourages accountability and encourages static boards that don’t have to answer to their shareholders. Now, in order to elect a board of directors, a company sends out a “proxy” with its preferred slate of candidates (with the cost billed to the company), while shareholders wishing to place someone on the board have to “pay up for mailing and publicity costs, sometimes in the millions of dollars,” to send out their own, separate ballot. Instead of this, the SEC wants to mandate that shareholders who hold 1 to 5 percent of a company’s shares (depending on the company’s size) for more than one year be able to put their candidates on the main ballot.
Without access to the proxy, shareholders find it exceedingly difficult to exert any pressure on management to curtail hefty bonuses and high-risk profit seeking that come at the expense of long-term growth, while studies have shown that boards with members elected by activist shareholders perform better in both the long- and short-term. The SEC’s proposal would increase corporate democracy, by giving shareholders the opportunity to hold their boards accountable for mistakes.
As Michael Corkery wrote at Deal Journal, the argument that the SEC’s proposal would increase the role of “big government” in the business world “seems a stretch.” Indeed, it appears that the Chamber is invoking the threat of Big Brother to cover its own partnership with the business community’s entrenched interests.