CII wants SEC to keep up legal fight

The Council of Institutional Investors has called for the Securities and Exchange Commission to pursue a re-hearing of a controversial proxy access rule that would have bolstered shareholder rights but was recently defeated in a legal challenge.In July the US Court of Appeals for the District of Columbia Circuit vacated a SEC rule that would have allowed for shareholders to put nominees on corporate ballots.

The proposed rule would have made it easier for shareholders to oust board members and is part of a suite of reforms passed into law by the Federal Government in the wake of the financial crisis.

This successful legal challenge is widely seen as the first of many which could water down a raft of regulatory changes aimed at Wall Street.

The SEC has previously said that the new proxy access rule could led to broad-ranging improvements in corporate governance and restore investor confidence.

Previously, incumbent directors decided who appeared on the ballots mailed out to shareholders, with those wanting different nominees forced to go through a “proxy contest” to get their candidate.

The SEC claimed the new rules would lead to boards being more responsive to shareholders, more independent of management and that the rule change would lead to an increase in shareholder value.

But the moves were opposed in the courts by business groups and the CII this week has called for the SEC to a pursue a petition for en banc, which involves a re-hearing in front of a full panel of judges at the court.

“The panel’s decision does not merely delay the implementation of a critically important rule designed to benefit long-term investors and the markets; it also imposes unnecessary costs on the Commission by requiring it to consider anew issues it already fully and reasonably examined,” Jeff Mahoney (pictured), the CII general counsel said in a letter to the SEC.

The letter, stating it had been hand-delivered to Mary Schapiro, the chairman of the SEC said the court had erred in its decision, which the CII  believed could weaken regulators.

“More broadly, the panel’s decision could have long-term negative consequences on the ability of the Commission and other agencies to effectively and efficiently promulgate rules that improve the regulation of the markets.”

The Council went on to say that the proxy access rule was its “number one priority” and offered to lend its support to the SEC if it sought to reissue the final rule after addressing the concerns of the court.

The three-judge panel said the empirical evidence was “mixed” that the rule 14a-11 the SEC proposed would benefit shareholders.

The judges also said the commission had failed to do an adequate cost-benefit analysis, agreeing to the view put by the Business Roundtable and the US Chamber of Commerce that the rule could have a detrimental effect on companies.

In other proxy voting news the State Board of Administration (SBA) released its proxy voting record for the year ended June 30 2011, revealing that it had “for” 75.5 per cent of all proxy issues and “against” 20 per cent.

Over the course of the year SBA executed votes on 6,138 public company proxies covering 56,536 individual voting items.

The fund also engaged with 2,200 companies where it says it emphasised “the importance of key governance issues such as majority voting and annual board elections”.

In 2011 the fund also expanded its internal voting responsibilities to the majority of its externally managed global accounts.

The fund opposed a number of directors being elected and listed its most significant opposition occurring at IRIS International, where it opposed nine directors being elected, Vornado Realty Trust with three directors and Ferro, Fred’s Inc and Healthcare Services Group where it opposed two directors. All of the above directors it voted against failed to get elected.

When it came to executive compensation the SBA supported 58.7 per cent of all non-salary (equity) compensation items and supported 66.2 per cent of executive incentive bonus plans. It supported 44.3 per cent of management proposals to adopt restricted stock plans in which company executives or directors could participate. When those plans were subsequently amended it support 48.6 per cent of them.