New US proxy access rules a “win-win”, says CalPERS

Controversial new rules to facilitate shareholder nominations of directors at US companies have been welcomed by pension funds and corporate governance activists.
The Securities and Exchange Commission, the US financial regulator, yesterday approved rules to give shareholders who own 3% of a company’s stock for at least three years the right to have their board nominee included in companies’ proxy materials. The process was prohibitively expensive prior to the ruling.
The long-debated and controversial issue went through in a 3-2 vote. “I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfil the responsibilities of serving as a director,” said SEC Chairman Mary Shapiro.
Rob Feckner, president of the $206bn (€162bn) California Public Employees’ Retirement System, said it was “an important advancement of the principles of investor protection” and that it will be considered “a win-win for business and investors”.
Proxy access has been CalPERS’ top corporate governance goal for a long time and it and other US public pension funds have been lobbying the SEC for “meaningful” rules.
The fund’s chief investment officer Joseph Dear added that long-term investors now have an opportunity to propose as directors “knowledgeable individuals who can bring fresh ideas and new perspective to a company’s operations”.
CalPERS has already started recruiting executivesto act as its director nominees, according to a report in the Wall Street Journal. Fellow Californian pension fund CalSTRS said the move allows like-minded institutional shareholders to team up. But CalSTRS’ CEO Jack Ehnes said the fund understood that proxy access is to be used “sparingly and only after other means of dialog and negotiations have been exhausted”. The $134.3bn fund would continue to focus on engagement as its primary governance tool.
The SEC’s Schapiro expected to see “dozens of instances of give and take” as the new rules take effect.
“Universal proxy access is a fundamental shareholder right enjoyed in most developed nations around the world, so we are very happy to see the United States achieve parity on this critical market mechanism,” said Lisa Woll, CEO of the Social Investment Forum, which has campaigned on the issue since it was founded in the early 1980s.
The Council of Institutional Investors said the proposal would “invigorate board elections and make boards more responsive to shareowners”.
The proposal was voted against by two SEC Commissioners, Kathleen Casey and Troy Paredes. Casey said the new rule will join climate change disclosure in the “pantheon of the SEC’s poor decisions”.
The US Chamber of Commerce also opposed the vote, saying: “Rather than focusing on good corporate governance, the SEC has given special interests the ability to hold the board hostage on narrow issues at the expense of other shareholders.”