Opt-In/Opt-Out "Private Ordering" Approach Seen as Non-Starter; New ShareOwners.org/CII Study Looks at Rules Governing Thousands of Leading U.S. Firms.

WASHINGTON, Nov. 16 /PRNewswire-USNewswire/ -- The case for a uniform federal proxy access rule for the election of corporate directors is stronger today as the result of a major new study finding that the alternative permitting company-by-company decisions on such access would effectively lock out shareholders at about 40 percent of top U.S. companies.

Titled "The Limits of Private Ordering: Restrictions on Shareholders' Ability to Initiate Governance Change and Distortions of the Shareholder Voting Process," the new study from The Corporate Library for ShareOwners.org and the Council of Institutional Investors (CII) looks at how so-called "private ordering" -- with opt-in/opt-out votes on proxy access at individual companies - would play out under real-world circumstances.

The new study concludes: "The case for private ordering assumes that shareholders will be able to initiate proposals opting into or out of an access regime, as well as that voting outcomes reflect the will of the majority. Data on bylaw amendment limitations show that at between 38 and 43 percent of companies, depending on the index, shareholders are either unable to amend the bylaws or face significant challenges in the form of supermajority vote requirements ... If shareholders cannot amend the bylaws, both opting into and out of proxy access through a shareholder-adopted bylaw amendment are impossible."

Maureen Thompson, executive director, ShareOwners.org, said: "The only alternative that will enfranchise investors is a uniform SEC proxy access policy. This new study makes it crystal clear that the alternative is no reform at all in that shareholders at nearly half of companies would not have real choices. Private ordering would mean that shareholders at a significant number of companies in the broad market indexes would be disenfranchised and essentially have no choice."

Potential state law issues also loom as yet another huge barrier to shareholders. CII Executive Director Ann Yerger noted that while Delaware recently amended its corporation laws to expressly permit proxy access bylaws, at least 40 percent of all public companies are not incorporated in that state. Yerger said: "At this point there is no assurance that shareowner-initiated proxy access proposals will be valid in these other states."

Beth Young, senior research associate for The Corporate Library and author of the report, said: "The findings cast doubt on the notion that shareholder voting outcomes reliably reflect the views of the majority. Broker voting, which would be in effect for management proposals to opt out of a proxy access rule, would result in significantly higher votes for those proposals than they would otherwise receive. A further distortion would be supplied by dual class capital structures with disparate voting rights, which were found at between seven and nine percent of companies studied. Such arrangements amplify the voting power of a small number of shareholders, who are often company insiders."

The full text of The Corporate Library/CII/ShareOwners.org study is now available online at http://www.shareowners.org/page/get-the-news.

In June 2009, the Securities and Exchange Commission proposed to require public companies to include in the company proxy statement and proxy card the names of director nominees submitted by substantial long-term shareholders (generally referred to as "access to the proxy" or "proxy access"). At the same time, the SEC proposed to amend Rule 14a-8(i)(8), the shareholder proposal rule's "Election Exclusion", to reverse a 2007 amendment and allow shareholders to submit proposals seeking the adoption of a proxy access regime.

The comment period for the SEC rulemaking expired on August 17, 2009. Among industry commenters, a common theme was that the SEC should refrain from imposing a uniform federal access procedure. Instead, these commenters urged, the SEC should facilitate "private ordering" to permit shareholders at each individual company to decide whether proxy access is desirable and to establish its precise contours.

The Corporate Library study conducted for CII/ShareOwners.org looks at the potential impact of private ordering on Russell 3000 companies, Russell 1000 companies and S&P 500 companies. It concludes: "Between outright prohibition and supermajority voting requirements, shareholders at approximately 40 percent of companies in the three indices face meaningful barriers to adopting a bylaw amendment opting into or out of a proxy access regime. A standard other than a simple majority is in place at 43.2 percent of Russell 3000 companies, 40.2 percent of Russell 1000 companies and 38.5 percent of S&P 500 companies."

Because data were not available for all companies in the indices, the analysis was performed on 491 companies in the S&P 500, 924 companies in the Russell 1000 and 2,817 companies in the Russell 3000. Data were drawn from The Corporate Library's database of North American corporate governance information, and were current as of October 2009.

The S&P 500 is a stock market index whose constituents have market capitalizations in excess of $3 billion and satisfy certain other criteria. The Russell 1000 index is made up of the 1000 largest U.S. public companies by market capitalization; similarly, the Russell 3000 constituents are the 3000 largest U.S. public companies by market capitalization.

ABOUT THE GROUPS

Launched in June 2009, ShareOwners.org (http://www.ShareOwners.org) is a nonprofit and nonpartisan organization that will educate and organize U.S. investors to support both short- and long-term financial market reforms. ShareOwners.org's broad four-part agenda focuses on the need for stronger regulation (including a beefed-up SEC), increased accountability of boards/CEOs, improved financial transparency and protection of the legal rights of investors.

The Council of Institutional Investors (http://www.cii.org) is a nonprofit association of public, union and corporate pension funds with combined assets that exceed $3 trillion. Member funds are major long-term shareowners with a duty to protect the retirement assets of millions of American workers. The Council strives to educate its members, policymakers and the public about good corporate governance, shareowner rights and related investment issues, and to advocate on its members' behalf. Corporate governance involves the structure of relationships between shareowners, directors and managers of a company. Good corporate governance is a system of checks and balances that fosters transparency, responsibility, accountability and market integrity.

For ten years, The Corporate Library (http://www.thecorporatelibrary.com) has been the independent source for corporate governance research and risk analysis. The company's line of corporate governance information products, research services and data are sold to many of the world's leading corporate governance stakeholders. Leading-edge corporate governance research is created by industry thought-leaders using a proprietary database of governance and executive compensation information on over 3,200 public companies and over 45,000 executives and directors.

SOURCE ShareOwners.org, Washington, D.C.; Council of Institutional Investors, Washington, D.C.

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RELATED LINKS
http://www.shareowners.org
http://www.cii.org/