Washington Retail Insight

NRF Urges SEC to Set Higher Threshold for Shareholder “Proxy Access” in Corporate Board Elections

By J. Craig Shearman
Washington Retail Insight
August 24, 2010

NRF is asking the Securities and Exchange Commission to set a higher threshold for the amount of stock owned when it votes this week on a “proxy access” proposal that would make it easier for shareholders at publicly traded companies to place candidates on the ballot for corporate board of director elections.

“NRF’s members support shareholder democracy,” NRF President and CEO Matthew Shay said. “However, unlike political challenges, proxy contests involve not only policy disputes but actual disengagement of management from the operations that keep the profit-making entity afloat. Accordingly, one should be very certain that access, and the resulting contests, is supported by those who have a substantial stake and interest in the economic well-being of the company.”

Proxy contests are “time consuming and disruptive” and repeated challenges “could cause management to reorient its focus toward satisfying the disruptive shareholder’s immediate goal, regardless of the prospects of success,” Shay said.

Shay’s comments came in a letter to the SEC, which is scheduled to vote Wednesday on a long-debated proposal that would allow shareholders to demand that their candidates be placed alongside company-backed candidates on proxy ballots printed, mailed and tallied at company expense. Without “proxy access,” candidates face a more expensive and cumbersome process of sending out their own ballots and submitting them to the company.

Under the version expected to be voted on, proxy access would be given to shareholders who have held at least 3 percent of stock for at least two years. Special interest groups would be allowed to aggregate their holdings in order to meet the requirement.

Shay told the commission the two-year period is appropriate but that the 3 percent level “allows a contest to be launched by too few people.” Instead, NRF supports 5 percent as a “far more appropriate balance.”

The Wall Street Journal reported this week that groups ranging from labor unions to major institutional investors unhappy with weak company performance hope to make use of proxy access if the proposal is approved. The newspaper quoted an arm of the Change to Win union federation as calling proxy access a “powerful tool” to “improve underperforming boards.”

Proxy access has been debated by the SEC since at least 2003 but has been strongly opposed by the business community because of the potential disruption to a company’s operations by groups of activist or minority shareholders seeking a board seat, often to voice displeasure with the company’s actions.

Chairwoman Mary Schapiro revived the issue after taking office in 2009, and the commission issued a formal proposal last year that would have allowed shareholders owning as little as 1 percent of a company’s stock for as little as one year to place candidates on the ballot. During debate of financial services reform legislation, Senator Charles Schumer, D-N.Y., proposed a 3 percent threshold, and Senate Banking Committee Chairman Christopher Dodd, D-Conn., proposed that the threshold be set at 5 percent with a minimum ownership period of two years.

In the end, the Dodd-Frank Wall Street Reform Act signed into law this summer gave the SEC authority to set regulations for proxy access but left percentages and time periods to be determined by the commission.

© 2010 National Retail Federation