SEC Chairman Mary Schapiro sees proxy access rules as the way to give shareholders a greater say on choosing directors and a credible path for ousting boards. Directors have reason to be concerned. It’s clear that some form of proxy access will pass. However, this is not a time for directors to wait and see. Rather, this is a clarion call for boards to respond strategically rather than wait to comply.
Wednesday’s Wall Street Journal describes the campaign by law firms, associations and companies to derail or weaken the current SEC proposal, which makes it easier for shareholders to nominate directors.“Fight Brews as Proxy-Access Nears” outlines the changes that proxy access, or Rule 14a-11 would allow stockholder groups, whether activist hedge funds or institutional investors, to place a candidate on a company’s proxy materials at the company’s expense. Furthermore, all of the candidates would be listed together eliminating the current practice of voters checking one box to vote for management’s slate of candidates
Boards have a window of opportunity to use communication as a risk management tool. How much better for boards to frame the conversation about current governance practices rather than waiting to react and comply with the new rules? Boards have worked hard to assemble the right expertise on their boards, but few shareholders know how the amalgamation of talent serves to bring diverse views and business experience to their oversight role. Directors are listed in the proxy and appear on websites, however the information does little to highlight their expertises. Many directors are fearful that proxy access will weaken their boards just when strong boards are needed most. There are a number of simple steps boards can take to convey to all shareholders the expertise and dedication of the board. Boards that seize the moment with a customized board-shareholder communication program will be well positioned when the SEC finalizes the proxy access rules this fall.