SEC commissioner calls for SEC changes in dealing with activist investors
As proxy season ramps up, yet another major voice is proposing changes to how the SEC deals with activist investors: SEC Commissioner Daniel Gallagher himself.
March 28, 2014 at 06:40 AM
3 minute read
The original version of this story was published on Law.com
As proxy season ramps up, yet another major voice is proposing changes to how the Securities and Exchange Commission (SEC) deals with activist investors: SEC Commissioner Daniel Gallagher himself.
At a corporate law conference speech in New Orleans on March 27, Gallagher said in prepared remarks that the SEC should introduce rules to curtail the system for investors who attempt to “hijack” the proceedings. According to Gallagher, the majority of shareholder proposals come from those with “idiosyncratic and often political agendas” rather than shareholders at large.
“It is incumbent on the commission to create a regulatory environment that promotes shareholder value over special interest agendas,” said Gallagher, according to the Wall Street Journal. A Republican himself, Gallagher also noted, “I find it particularly notable that corporations that donated more funds to Republicans than to Democrats were more than twice as likely to be targeted with political spending disclosure proposals sponsored by labor-affiliated funds.”
He said that many companies currently incur higher-than-necessary costs during proxy season to fight special-interest proposals, costs that are borne by all shareholders. He cited a push to require companies to disclose political spending activities as one example as an activity unrelated to or in conflict with the long-term interests of shareholders.
Gallagher proposed a number of potential changes the SEC could make. One proposal sees the threshold required for shareholder proposals raised from $2,000 to a much higher number. Another change could see resolutions eliminated or curtailed altogether.
The issue of activist investors has drawn plenty of attention in recent days. Writing in the Columbia Law Review, Delaware Chief Justice Leo Strine proposed that activist investors be forced to pay a fee, somewhere between $2,000 and $5,000, every time they attempt to submit a proposal. That way, Strine said, the activist investor would “bear some of the costs they impose.” He also advocated for more transparency about their motives in submitting proposals.
Some public companies are frustrated that the SEC is not separating frivolous shareholder proposals from legitimate ones, which has led to the increased attention. Under the current SEC rules, a qualifying shareholder can seek to publish certain proposals in company proxy statements, although companies can ask the SEC to remove resolutions they do not like.
However, some activist investors believe that companies are overreacting. John Chevedden, who files dozens of good governance proposals each year, told the WSJ, “They just seem to want to stifle the shareholders and not give them a meaningful opportunity to make improvements.”
For more on 2014 proxy season, check out these InsideCounsel articles:
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