In a blog post on the Securities Exchange and Commission (SEC) website, SEC Commissioner Robert Jackson Jr discussed the proposed revision in rules and regulations regarding investors voting and accountability of corporate insiders. Jackson Jr stated that there is a need to examine these rules and make necessary changes, as this particular area hasn’t received due attention for years.
In the post, Commissioner Jackson Jr argumentatively proposed the changes in three points:
1) Tilting Corporate Elections Toward Management
2) Taking CEO Accountability off the Corporate Ballot
3) The Path Ahead
Focusing on the first point, the commissioner discussed how investors use proxy advisors to make recommendations about the way shareholders should vote. This is because the investors lack the time and money involved in holding the executives accountable. To reform such practices, the commissioner has proposed a tax on the firms that recommend shareholders to vote in an anti-executive manner.
He further added,
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.
The second point discusses how the proposal will significantly raise the vote share required for the resubmission of a shareholder resolution. He stated that historically, the SEC has always been keen on protecting investors’ interest; however, the proposal in discussion seems to be taking quite the opposite approach.
For example, when we first developed rules requiring disclosure of executive pay, the Commission’s release used results from shareholder proposal votes at nine public companies as a basis for our new rule. All but one of those executive pay proposals fell short of the third resubmission threshold my colleagues propose today.
In the third point, the commissioner discussed what could be the future outcomes of the proposal implemented. Jackson Jr stated that the proposal is highly regrettable, and will have a negative impact on the investors’ interest in the times to come. However, he also mentioned that there’s a potent alternative to the problems, which led to the framing of the proposal, which can be implemented with significantly lower collateral damage.
If we’re worried about the classic problem that arises when one person is empowered to spend someone else’s money, we should ask whether our shareholder-proposal rules allow a few investors to impose excessive costs on ordinary investors. And we should study and propose a rule designed to solve that problem.