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US instos battle for proxy rights on boards

The ongoing saga of US investors’ right to have a say in corporate elections continues with the Council of Institutional Investors (CII) refuting the Business Roundtable’s (BRT) claims that the proxy rule will injure shareholder interests.

The Securities and Exchange Commission (SEC) approved a rule in August granting certain long-term investors – shareholders who have held 3 per cent of stock for three  years according to BRT – proxy access at US public companies, but due to the Business Roundtable-Chamber lawsuit, the rule was not put into effect.

According to BRT, proxy access will have a number of unintended consequences including weakened effectiveness of the board of directors and increased costs.

BRT also claims that proxy rules will be hijacked by certain activist shareholders who will use the rules as a tool to advance an agenda that conflicts with the interests of the majority of shareholders.

CII, an association of public, union and corporate pension funds with combined assets in excess of $3 trillion, has refuted BRT’s claims that the rule will injure shareholder interests, saying it warrants scepticism due to BRT’s own description as “an association of chief executive officers of leading US companies”.

“Proxy access will make companies more responsive to their shareowners and more vigilant in their oversight of management,” said CII’s executive director, Ann Yerger.

“The basic shareowner right is widely accepted in many countries. US investors deserve this same, fundamental protection.”

Proxy access gives shareholders a voice in corporate board elections by letting them place their nominees for director on the company’s proxy card when they are dissatisfied with the board and want to run their own candidates.

The ongoing saga of proxy rights has brought together 15 pensions funds (including California Public Employees’ Retirement System, the New Jersey Division of Investment and New York City Employees’ Retirement System), with the CII to lodge a “friend of the court” brief to the US Court of Appeals for the District of Columbia Circuit on January 27 to outline their support of SEC’s proxy rule.

CII has also welcomed the report of the Financial Crisis Inquiry Commission, whose findings echoed many of the insights of the July 2009 report of the Investors Working Group (IWG), an independent, non-partisan commission co-sponsored by CII and the CFA Institute Centre for Financial Market Integrity.

The commission concluded the crisis was avoidable and was caused by numerous factors. These included:

  1. widespread failures in financial regulation
  2. dramatic breakdowns in corporate governance
  3. an explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis
  4. key policy makers were ill-prepared for the crisis, and
  5. systematic breaches in accountability and ethics occurred at all levels

“The report is a thorough, painful reminder of the massive failures of oversight that paved the way to the brink of financial Armageddon in 2009,” said CII’s Yerger.

“Gaps in regulation, failures of will on the part of regulators, and complacence on the part of corporate boards contributed to the debacle that cost millions of Americans their jobs and devastated their retirement savings.”

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