SEC Denies Union’s Bid for Proxy Access at Five Companies

By Staff Report

Feb. 13, 2008

The Securities and Exchange Commission has permitted several companies to exclude proxy access proposals from their ballots. The approvals could set the stage for a legal battle later this year.

In four no-action letters posted on its Web site Monday, February 11, the commission decided to step aside and allow Bear Stearns, JPMorgan Chase, E-Trade Financial and apparel marketer Kellwood Co. to exclude proposals by the American Federation of State, County and Municipal Employees. Those proposals, if passed by shareholders, would have allowed shareholders to amend company bylaws to include director nominees proposed by any shareholder who has held more than 3 percent of common stock for at least two years.

The SEC also allowed Croghan Bancshares to exclude a similar proposal by an Ohio investor, Samuel Danziger. That proposal would have allowed director nominations by shareholders with more than 1 percent of common stock held for at least one year.

The five companies had sought to exclude the proxy proposals from their ballots, stating that a new SEC rule prohibits shareholders from proposing bylaw changes related to director nominations. Attorneys for Croghan Bancshares also claimed the proposal they received was “inherently vague.”

The SEC voted in November to bar shareholders from proposing company bylaw changes related to director nominations. The rule, reportedly pushed through by the commission’s Republican majority, was denounced by then-Commissioner Annette Nazareth, labor investors, state pension funds and Democratic lawmakers.

At a summer open meeting, the SEC floated another rule that would somewhat open up the proxy process to shareholders. That more restrictive access rule did not have enough votes to pass, either, because Democratic Commissioner Roel Campos had resigned before the vote was held.

A legal battle over proxy access wouldn’t be unprecedented. In 2006, AFSCME won a court ruling against American International Group, allowing the union to propose a rule to nominate its own slate of directors. The court in that case told the SEC to clarify its rules on proxy access, which set the stage for last year’s proxy access vote.

Rich Ferlauto, AFSCME’s director of corporate governance and pension investment, noted that AFSCME will respond to the SEC’s decision in the next few weeks.

In an interview earlier this year, he told Financial Week that the 2nd U.S. Circuit Court of Appeals, where such lawsuits would likely be filed, is a good venue for his union because the court is generally sympathetic to shareholder concerns.

Filed by Nicholas Rummell of Financial Week, a sister publication of Workforce Management. To comment, e-mail

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