Issue Letter on Proposed SEC Rules for Shareholder Access to Proxy

Post Date: December 5, 2003

Six Harvard Law School professors have joined with nine of their colleagues at Harvard Business School to comment on proposed Securities and Exchange Commission rules regarding shareholder access to corporate proxy elections. The letter represents a continued collaboration between faculty at HLS and HBS. The recently formed study group on corporate governance has been meeting once a month for the past year to analyze current corporate governance issues.

“Our letters to the SEC represent some of the best that the HLS/HBS study group can do,” said law school Professor Mark J. Roe. “We meet once a month, and the free-wheeling discussion combines the views of corporate and securities law professors from the law school with the views of management and accounting types from the business school. When the discussion works well, we end up with a more refined sense of what will both work in terms of law and advance the ball in terms of business results.”

In addition to the most recent letter to the SEC, the group has commented earlier in the process to the SEC’s staff. HLS Assistant Professor Guhan Subramanian was the primary drafter of one letter; Mark Roe of the other. The group has also discussed individual professors’ reform proposals, some of which have already appeared in the Harvard Business Review.

“We understand that the SEC commissioners have found our letters influential because they give more than opinion-they also provide context, reasoning and business sense, and then come down to concrete proposals for what the SEC could, or should not in our view, do,” said Roe.

The most recent letter urges the SEC to refine its proposed rules that would give shareholders limited access to a company’s ballot system. Under the current rules, a company’s managers use the company’s vote solicitation machinery to select new directors; objecting shareholders have to pay for their own solicitation of shareholder votes. The SEC’s new proposals would give some shareholders access to the company’s solicitation proposal to nominate a few directors, after a delayed set of “triggers” had played out.

The HLS/HBS group’s principal proposal would give shareholders a means to propose a slate more rapidly than the SEC proposal would. The group’s goal was to stay within the spirit of the SEC’s proposal and graft traditional, long-used corporate standards onto it to stream-line shareholder access to ballot.

Subramanian tracked the other submissions the SEC has thus far received and publicly posted. “The typical letter either opposes the SEC action or says that it doesn’t go far enough. We take a middle ground, and try to refine the current SEC proposal in ways that will make it more likely to achieve its intended objectives,” said Subramanian.

The letter was signed by Harvard Law School Professors Lucian A. Bebchuk, John C. Coates IV, Howell Jackson, Reinier H. Kraakman, Mark J. Roe and Guhan Subramanian; and Harvard Business School Professors Dwight B. Crane, Alexander Dyck, Boris Groysberg, Brian J. Hall, Paul M. Healy, W. Carl Kester, Rakesh Khurana, Jay W. Lorsch, and Krishna G. Palepu.