Corporate Governance

Business Roundtable v. SEC: Special Interest Shareholders and the "Phantom" Argument

By J Robert Brown Jr.

Petitioners brief essentially asserts that access will be used by special interest shareholders.  In particular, the brief seems concerned with the use of access by union pension funds.  The amicus brief filed by the CII, TIAA-CREF and other funds had this to say about the argument:

• the   'special-interest'   shareholder   petitioners   purport   to   fear   is   a phantom.     They offer no credible evidence to support their erroneous assertion that  the actions of 'state government and labor union[]' investors often 'appear to be driven   by   concerns   other   than   a   desire   to  increase'   shareholder   value.   Pet.   11. They offer no evidence that such 'parochial' investors have burdened corporations with unreasonable demands in countries with proxy access.  See pp. 15-17, supra.  And the one anecdote cited by petitioners (at 12) undermines their claim.  They do not assert that the Safeway 'vote-no' campaign participants would have met the Rule's 3%-ownership-for-3-years requirement.  To the contrary, the participating funds there   'collectively h[e]ld about 7 million of Safeway's 445   million outstanding shares'—or only 1.6%.    Walsh, State Pension Officials Accuse Safe- way Leaders of Conflict, N.Y. Times, Mar. 25, 2004, http://www.nytimes.com/2004  Petitioners' own example thus proves the Rule's efficacy.   And if there   were outlier abuses, the  across-the-board benefit  to shareholders of  greater director responsiveness abundantly justifies any minimal outlier costs.

Full post as published by The Race to the Bottom on February 09, 2011 (boomark / email).