When the going gets tough, Congress punts.
That's what it did with Proxy Access. Although the financial reform bill contains a number of provisions that no doubt irk regulation opponents in general-such as the curbs on proprietary trading and the creation of the consumer protection board-when it came to corporate governance, Congress cowered to the interests of the Business Roundtable and US Chamber of Commerce.
There is no majority voting provision for directors even though some boards think it is necessary to require a "super majority" to make certain changes, not just a simple majority.
Nice double standard.
And, although we were led to believe there would be some form of proxy access--albeit a very watered down version--in the final version of the bill, it turns out there is no proxy access mechanism at all.
Instead, the Senate and House sausage-makers decided to simply kick it back to the Securities and Exchange Commission.
Under the deal, Congress is giving the SEC authority to write some sort of proxy access rule, without offering specific thresholds. Oh, and it said the regulator can exempt small public companies if it wants to.
What does this all mean? We are now back to where we were five or so years ago, when the SEC drafted its first PA rule and hosted a round-table on the topic. It then did nothing under the do-nothing SEC chairman, Chris Cox.
The decision by Congress to opt out on the issue presumably resulted from a disagreement over whether to set an ownership threshold as high as 5 percent-and for two years--before a shareholder can nominate a director.
Now, keep in mind that chief Senate negotiator, Senator Christopher Dodd, was actually the one pushing for a minimum 5 percent threshold and a two-year holding period to the legislation, which was requested by White House officials to meet the concerns of the Business Roundtable, according to Risk Metrics.
It points out that Senator Charles Schumer (NY) called for a 3 percent stake, a three-year holding period, and a so-called "tail" provision suggested by Senator Evan Bayh of Indiana to require nominators of successful board candidates to hold their shares for another two years after the board election. RM says Schumer insisted there was a "broad consensus" within the investor community in support of his offer.
However, with such onerous requirements, why even bother?
Indeed, Rep. Barney Frank, leader of the House delegation and perhaps the politician who is most knowledgeable about all of the provisions of the financial overhaul bill, including the nuances, questioned how the SEC could possibly enforce a post-election holding requirement, Risk Metrics points out.
The upshot: Congress punted, the SEC received the ball, and now it is their turn to run out the clock on this emotional issue.