Business Roundtable, an association of Chief Executive Officers of America’s leading companies representing over $6 trillion in annual revenues and 12 million employees, is committed to support policies that will accelerate U.S. economic recovery, build a platform for sustained job creation and economic growth, boost exports, and enhance the ability of U.S. companies to compete and win in the global economy.
Following our discussions with you earlier this summer, we agreed to work with you on near-term policies to create a favorable climate for job creation and economic growth. For Business Roundtable members, the authority granted to the Securities and Exchange Commission (SEC) to establish new rules for proxy access under the “Wall Street Reform and Consumer Protection Act” represents a major threat to the ability of U.S. companies to grow and create jobs. Business Roundtable submitted comments to the SEC in August 2009 and January 2010 that detail a pragmatic compromise, despite Business Roundtable’s fundamental opposition to this newly created federal regulatory authority.
As the SEC stated in July 2009, the SEC has stated that its proposals are warranted “in light of one of the most serious economic crises of the past century.” We take issue with this proposition as the SEC has been debating the issue of proxy access for decades. In fact, the SEC’s proposed proxy access rules likely would exacerbate one of the agreed-upon causes of the crisis: the emphasis on short-term gains at the expense of long-term, sustainable growth. Business Roundtable members are concerned that the threat of a director election contest could place unnecessary pressure on a company to improve short-term financial performance, in the interest of appeasing the immediate demands of shareholders, by, for example, reducing hiring, capital expenditures and research and development investments. Moreover, the SEC’s proposed election contest rules likely would increase the influence of hedge funds, which may use proxy access to advance their own short-term interests and investment strategies at the expense of long-term value creation.
Business Roundtable is concerned that the low ownership and holding period thresholds proposed, and currently being considered, by the SEC may encourage the submission of nominations by shareholders with a short-term focus. Contrary to the SEC’s assertion, the proposed low thresholds do not, in our view, limit proxy access only to those shareholders with a “significant, long-term interest” in a company. The proposed rules could lead to the election of “special interest” directors, who may promote their own interests or those of the shareholders nominating them at the expense of the interests of other shareholders or the company as a whole.
Business Roundtable believes that any new proxy access rules should include meaningful eligibility criteria of at least a five percent ownership threshold and a two year net holding requirement. Setting a low, three percent threshold, as currently being considered, would allow special interest groups to aggregate their shares to pursue their own narrow agendas rather than the creation of long-term shareholder value. Moreover, without a limitation on the use of borrowed or hedged shares, a shareholder without a significant economic interest would be able to use proxy access at minimal cost. At many of our member companies, a five percent threshold would assure that a mainstream investor, such as a mutual fund, is a part of the shareholder group nominating a director. A five percent threshold would also help ameliorate the significant cost and disruption that will result from the proxy access rules.
We share with you a common objective: to get the U.S. economy back on track, creating jobs and financial security for millions of Americans. To meet this goal, Business Roundtable believes that economic and regulatory policies must increase confidence and certainty rather than decrease them. Business Roundtable CEOs, who manage leading U.S. companies that represent the broad diversity of the American economy, feel very strongly about this issue, and they are communicating directly with the SEC about this major policy decision.
We expect a decision by the SEC on a proxy access rule at its August 25 meeting. The implications of that decision will be far reaching and likely will have a major impact on how all U.S. publicly traded companies are governed. As a practical matter, Business Roundtable members want to make certain that whatever rules the SEC adopts are workable and do not further exacerbate America’s fragile economic recovery. We are available to discuss the proxy access issue in greater detail with you at your convenience.