Apparently, many folks in corporate America don't like the idea that shareholders should enjoy any influence or voice in the companies to which they supply capital. The Business Roundtable and U.S. Chamber of Commerce have taken legal action against the Securities & Exchange Commission in hopes of overturning the SEC's recent proxy access rule.
The fight against shareholder rights
Many of us welcomed the SEC's recent rulemaking as a shift toward shareholder rights. When things are going bad for a business, the proxy access rule enables shareholders to nominate their own directors to corporations' boards without a proxy fight.
Notably, the SEC's final rule doesn't make this course of action too easy. Shareholders (or groups of shareholders) would have to hold 3% of the company in question's stock for at least three years before they could start nominating directors. Still, Big Business seems hopping mad about the new rule.
The Business Roundtable is an association of CEOs of dozens of top American companies, counting FedEx (NYSE: FDX), Goldman Sachs (NYSE: GS), and Alcoa (NYSE: AA) among its members.
The U.S. Chamber of Commerce claims the status of the largest business federation in the world, representing 3 million businesses. Executives from Pfizer (NYSE: PFE), AT&T (NYSE: T), and 3M (NYSE: MMM) rank among the high-profile members of its board of directors, revealing the group's considerable clout.
Among other complaints, the business groups grouse that the rule will empower unions and other special interests. While many unions do own some shares of publicly traded companies (it's a free country, after all!), the ownership threshold in the proxy access rule is too steep for many shareholders to even qualify. And even if unions or other rebellious groups did nominate their own candidates, shareholders would remain free to vote however they wished. That makes conspiracy theories about dystopian proxy-access nightmares sound absurd.
When criticism's hard to swallow
I'm not surprised that many corporate managers and board members might find the proxy access rule disturbing. Shareholder activism would be annoying for anyone intolerant of criticism or scrutiny, even if it's perfectly constructive and reasonable.
Take Barnes & Noble's (NYSE: BKS) recent high-profile proxy fight. Although shareholders have ended up voting on behalf of Barnes & Noble's management and board (and against shareholder Ronald Burkle, who was trying to replace three board members and company chairman Leonard Riggio), management remained affronted by Burkle's efforts. "I find it almost repulsive I have to be put in a position to defend myself," Riggio said recently, according to The New York Times. "I don't want to consume myself with not liking people."
Perhaps managers shouldn't take things so personally. Burkle claimed that Riggio wouldn't tolerate critical questions about his management strategy. Burkle said he wasn't seeking control of the company; he simply wanted to insert a few directors who would voice more independent thought. The New York Times quoted Burkle as saying, "I want someone in there who doesn't say, 'That's the most amazing thing I have ever heard' every time Len opens his mouth."
Power struggles
Business lobbyists' latest drive to ax proxy access clearly reveals the difference between pro-business and pro-market policies. Pro-business drives like this one aim to give shareholder rights the shaft. In contrast, pro-market attitudes recognize that shareholders have a greater role in business than simply buying or selling shares.
The proxy access fight hinges on shareholders' right to push directors to do their jobs -- to think independently and advocate for shareholders, rather than buddying up with management and rubber-stamping every decision. Asking executives the right, and sometimes tough, questions in the spirit of protecting shareholder interests shouldn't be taken as a personal affront. Indeed, it's the right thing to do. Let's hope the lobbyists don't succeed in dealing shareholder rights yet another setback.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.
