On November 5, the SEC issued its proposed rules on shareholder proposals and proxy advisors and they are atrocious, violating every possible procedural and substantive requirement for administrative rule making. We will be commenting, urging others to comment, and covering the proceedings in detail. First, the statement objecting to the proposal from Commissioner Robert Jackson:
Today the Commission proposes rule changes that would limit public-company investors’ ability to hold corporate insiders accountable. We haven’t examined our rules in this area for years, so updating them makes sense—and these issues have been thoughtfully debated for decades. But rather than engage carefully with the evidence produced by those debates, today’s proposal simply shields CEOs from accountability to investors. Whatever problems plague corporate America today, too much accountability is not one of them, so I respectfully dissent….
Proxy advisors play an important role in striking the right balance in allocating power between corporate executives and investors. And it is, indeed, a balance, which is why I’ve supported common-sense ideas like rules ensuring that proxy advice is based on accurate facts. But under today’s proposal, the SEC is interfering in decades-long relationships between investors and their advisors in a way that will significantly skew voting recommendations toward executives. That will be especially true in cases, such as investor proposals to strengthen the link between CEO pay and performance, where proxy advisors have historically engaged in the careful, firm-specific analysis that such proposals require.
Tilting corporate voting toward incumbent management in this way will have consequences—including reducing the already-scant competition among proxy advisors—that we could and should have studied extensively before making any other changes in the balance of power between CEOs and shareholders. But instead my colleagues are also proposing changes to the shareholder proposal process that will further insulate corporate managers from accountability….
A better approach is to examine how these new rules would affect shareholder proposals that enhance value by making management more accountable to investors. So that’s what my Office did. We dug into the data to see what kinds of investor initiatives would be excluded by today’s rule. And the evidence shows that the proposed changes remove key CEO accountability measures from the ballot….
On average, we show, inclusion of shareholder proposals from individual investors by an American public company tends to be associated with long-term value increases. But so-called gadfly proposals—those brought by the ten most frequent individual submitters each year—appear to have the opposite effect. leading to long-run value decreases for ordinary investors: