SEC Commissioner Peirce Criticizes Proxy Process

In remarks at the Council of Institutional Investors Spring Conference, SEC Commissioner Hester Peirce highlighted developments in the proxy system, touching on disclosure reform efforts, dual-class shares and mandatory arbitration.

As to the SEC rules that empower investors to require that issuers put an investor's proxy proposal on the issuer's ballot for shareholder consideration, Ms. Peirce stated that the current quite low share ownership thresholds "encourage" small shareholders to advance proposals that advance those shareholders' personal or political beliefs, not the beliefs of the shareholders generally, and that result in "considerable costs borne by all shareholders." She observed that shareholders can repeatedly submit "losing" proposals, noting that in recent years, many of these proposals do not concern "core corporate governance issues" and instead promote shareholders' personal political and social preferences. Ms. Peirce warned that companies faced with a proposal that reflects only certain preferences of a minority number of shareholders may "resort to negotiating backroom deals with the proponents."

Separately, Ms. Peirce expressed concern with regard to making corporate directors' personal characteristics an item of expected disclosure. She said that such a requirement may have unintended consequences, which include, among other things, an invasion of board members' privacy or forcing board members to make disclosures as to their sexual orientation, religion or ethnic background so that an issuer may receive "credit" for a sufficiently diverse board.