Proxy access is the ability of certain privileged shareholders to have their own slate of director nominees included in the company’s proxy materials whether or not the board of directors (Board) approves. Proxy materials include a proxy statement used to solicit shareholder votes and a voting card, which allows shareholders to vote without attending the annual meeting. For many years, the default rules of corporate and securities law have provided the Board with exclusive authority to decide whether shareholder proposals seeking to implement proxy access will be included in a public company’s proxy solicitation materials. Five years ago, the Securities and Exchange Commission amended its rules to require these proposals be included.
Recently, shareholder activists have had significant success at getting these proposals implemented at publicly traded companies. Unfortunately, there has yet to be a substantive debate on whether proxy access actually provides value to shareholders.
To begin this debate, I’ve published What Shareholder Proposals on Proxy Access Tell Us About its Value with the Yale Journal on Regulation Online. My piece vets the only empirical study to date that evaluates the market effects of proxy-access proposals, an event study done by Tara Bhandari, Peter Iliev and Jonathan Kalodimos, Public versus Private Provision of Governance: The Case of Proxy Access.
I find that while this well-done study is an important first step to understanding the market value of proxy-access via the proposal process, the study suffers from a lack of external validity. That is, the results cannot be generalized to the market as a whole.
To become truly informed about the value of proxy access, much more data and analysis is required – something that will most likely take a number of years to produce. Such a result should not be surprising as shareholders, Board members and policy makers should be evaluating a body of empirical literature before coming to any conclusions on its value, not just one event study.
Bernard S. Sharfman is an associate fellow of the R Street Institute, a former Visiting Assistant Professor of Law at Case Western Reserve University School of Law, a former adjunct professor of business law at the George Mason University School of Business as well as other business and law schools, and a member of the Journal of Corporation Law’s editorial advisory board.