In their recently filed comment letter on the SEC's rule proposal, “Facilitating Shareholder Director Nominations,“ the Investment Company Institute (ICI) was quite critical of the proposal, finding fault on a number of counts. The letter stated that, in general, the ICI "believe[s] that the public interest will be served by allowing shareholders who meet appropriate eligibility criteria to submit bylaw amendments concerning director nomination procedures on a public operating company’s proxy statement." In particular, the ICI feels that the Commission's efforts to ease shareholder proxy access is appropriate for, and should be limited to, long-term shareholders with a significant stake in a company, with a legitimate interest in having a voice in the company’s corporate governance procedures."
With regard to the proposed rules' applicability to investment companies, the ICI was most critical, urging that the Commission exclude investment companies from the proxy access rules altogether:
As proposed, the Commission’s sweeping new proxy access requirements would apply to investment companies. Yet disappointingly, the Release provides no indication that the Commission has analyzed the need for proxy access requirements for investment companies or, if there is such a need, how the requirements should work. The current proposal does not account for the most prevalent types of investment company boards—unitary or cluster boards—or for other important differences between investment companies and operating companies. In addition, it does not appear that the Commission sufficiently considered investment companies when conducting empirical analysis in connection with the proposal.
In this regard, the ICI made the specific request:
Investment companies should be excluded from any final proxy rules regarding director nominations or related bylaw provisions and the Commission should consider whether to craft a new proposal better suited to the unique operational attributes of investment companies that is grounded in empirical analysis.
Aside from the ICI's main complaint about the rules' applicability to investment companies, the letter also articulated a list of more specific changes the ICI would like to see in the final rules:
1. Access to the company’s proxy statement for shareholder proposals related to bylaw amendments should be limited to shareholders with a significant ownership interest for an extended period of time, and who have acquired shares without the intent of changing or influencing control of the issuer; and
2. Direct access to a company’s proxy statement for the purpose of nominating directors should not be permitted at this time.
3. If the Commission nevertheless chooses to permit direct access to a company’s proxy statement to nominate directors:
- Access to a company’s proxy statement should be limited to shareholders who have acquired shares without the intent of changing or influencing control of the issuer;
- Access should be predicated on a significant ownership interest;
- All members of a shareholder nominating group should have continuously and beneficially held the company’s voting securities for an extended period of time;
- Companies should be required to include no more than one shareholder nominee;
- Nominating shareholders should be required to disclose their motivation for nominating a particular candidate;
- Companies should be permitted to provide shareholders with the ability to vote for the entire company-recommended slate by checking one box; and
- Nominating shareholders should have liability for their statements, and companies should be shielded from liability for those statements.
The ICI's letter provides more detailed explanations of each of the listed changes. The full text of the ICI's August 17, 2009 comment letter is available at: http://sec.gov/comments/s7-10-09/s71009-360.pdf
All of the comments on the Commission's proposal, “Facilitating Shareholder Director Nominations,“ may be found at: http://sec.gov/comments/s7-10-09/s71009.shtml
- "Forum Comments on Proxy Access Proposal,"August 18, 2009
- "SEC Proposes Shareholder Access to Director Nominations," July 1, 2009