The Securities and ExchangeCommission might be down toonly three commissioners of itsnormal panel of five, but thatdoesn’t mean it isn’t busy. Recentactions will affect this season’sproxies and naked short sellers. Butit is an old rule, Reg FD, that is gettingthe attention of directors.
In March, the SEC approvedplans by several companies toexclude proposals for proxy accessfrom their ballots, which may setup a legal fight in the comingmonths. In four separate noactionletters, the SEC allowedBear Stearns, JPMorgan Chase,E-Trade Financial, and Kellwoodto exclude proposals by the AmericanFederation of State, Countyand Municipal Employees(AFSCME).
The proposals sought to requiredirector nominations for companyboards by any shareholder whohas held more than 3-percent ofshares for at least two years.
The letters affirmed the SEC’searlier vote to bar shareholdersfrom proposing company bylawchanges related to director nominations.The rule, pushed throughby the commission’s Republicanmajority, was denounced by formerCommissioner AnnetteNazareth, labor investors, and othersas a move against shareholderrights. Look for pension funds totest the actions in court.
Meanwhile, the SEC is showinginvestors some sympathy onanother proxy issue, “say on pay.”After issuing a handful of similarno-action letters freeing companiesto keep the proposals off theproxy, the SEC ordered XTO toinclude a proposal from TIAACREFon pay, possibly signaling achange of heart on the issue.
Illegal Gaming
The SEC is accepting publiccomments on a new rule thatwould define abusive “naked”short selling as fraud. In such asale, the seller does not borrow orarrange to borrow securitiesneeded to make delivery to thebuyer within the standard threedaysettlement period for trades.This “failure to deliver” is sometimesintentional, part of ascheme to manipulate the priceof a security, or to avoid borrowingcosts associated with the shortsales. The SEC wants the practicecurtailed.
Listen Up
The effect of the SEC’s RegulationFair Disclosure (Reg FD),adopted in 2000, is being scrutinized.A policy report from YaleSchool of Management’s MillsteinCenter for Corporate Governanceexamines why “sustained two-waydialogue” between directors andshareholders is still rare in theUnited States. The silence couldbe due to directors’ concerns thatreaching out to large investorscould be considered selective disclosure,the authors contend.
Reg FD is intended to restrictselective disclosure of materialinformation without providing itto the public at the same time.The SEC has launched only afew Reg FD probes so far, but thelaw is widely considered to havechanged the nature of investorrelations. Only a select few,including Pfizer, allow directorsto hold regular meetings withlarge shareholders to hear theirconcerns.