A Comment on the SEC’s Shareholder Access Proposal

April 8, 2004

Stephen Bainbridge

The Securities and Exchange Commission (SEC, or the “Commission”) recently proposed a dramatic shakeup in the process by which corporate directors are elected. At present, the director nomination machinery is under the control of the incumbent board of directors. When it is time to elect directors, the incumbent board nominates a slate, which is then put forward on the company’s proxy statement. Because the SEC’s shareholder-proposal rule cannot be used to nominate directors, a shareholder who wishes to nominate directors is obliged to incur the  considerable expense of conducting a proxy contest to elect a slate in opposition to that put forward by the incumbents. This is the situation the SEC proposes to change. If adopted, proposed new Rule 14a-11 would permit shareholders, upon the occurrence of certain specified events and subject to various restrictions, to have their nominees placed on the company’s proxy statement and ballot. A shareholder-nominated director thus could be elected to the board in a fashion quite similar to the way shareholder-sponsored proposals are now put to a shareholder vote under SEC Rule 14a-8....

A Comment on the SEC's Shareholder Access Proposal