Model Proxy Access Proposal Template and Discussion Points Now Available

On November 10, 2010, the United States Proxy Exchange (USPX) released a Model Proxy Access Proposal that can be presented to corporations for a shareowner vote under SEC Rule 14a-8 to ensure that long-term shareowners have a reasonable, but not necessarily easy, means for including board nominations in the proxy materials those corporations distribute—so called “proxy access.”

The Model Proposal is designed to achieve legitimate purposes of proxy access without including anti-democratic provisions that have marred other approaches—most notably the SEC’s vacated Rule 14a-11. It provides two alternative ways parties may qualify to nominate: one is mostly suited for large shareowners, while the other is mostly suited for small shareowners. The Model Proposal imposes no hard cap on the total number of shareowner nominations, although it provides safeguards that obstruct parties from seeking a change in control through proxy access in all but the most unusual (disastrous) situations.

The Model Proposal is released with thirteen pages of accompanying discussion, explaining how to submit the Model Proposal to corporations. It describes some of the history of proxy access, dating to the 1970s. It details the legitimate goals of proxy access and explains how the Model Proposal achieves these without disenfranchising the majority of shareowners.

The USPX has developed the Model Proposal as a means of stimulating debate and experimentation with alternative approaches to proxy access. Implemented as-is, it will provide a reasonable means for most long-term shareowners to participate in nominating directors.

We encourage shareowners to submit the Model Proposal or to use it as a starting point in developing their own proposals. We hope that shareowners will also submit completely different proposals of their own design. Our discussion of issues should assist shareowners in that process. 

The success of proxy access depends on experimentation to find what works. The USPX is committed to supporting such experimentation. Releasing the Model Proposal is a part of that effort.

I have raised the subject of proxy access many times on ShareOwners.org. Since submitting a petition to the SEC in the summer of 2002 with Les Greenberg, proxy access has been something of a hoped for Magna Carta. We would still be nowhere toward reaching this goal without the tireless work of AFSCME, particularly Rich Ferlauto, and many others associated with the founding of ShareOwners.org.  We are still a long way from proxy access being accepted as a "good governance" proposal, like majority vote proposals are now seen. So it is critical that we get some real wins out of the starting gate. I encourage shareowners to file almost exclusively to address widely recognized board failures, not simply to improve a well-performing company.

It was about 2 a.m. when we nailed the proposal down after many consultations with experts and weeks of discussion among USPX members. For me it had also been the final day of the NACD 100, a visit with “Occupy Wall Street” and a long chat with dear friend who went from welfare mother to building the first oil refinery in Afganistan and now just got tenure at Queens College. 

As I reflected back on the day, I was struck by the fact that I have been getting some flack from my institutional investor friends about the idea that small shareowners, even a group of 100 as required in the model, could have sufficient wisdom to nominate good candidates. Yet these same people will nod in agreement when Subha Barry, a Senior Vice President at Freddie Mac, asserts that diversity is key. Time and time again, she told us at the NACD 100, a diverse group with less talent and lower skill levels will come up with better solutions than more talented but homogeneous groups. She is indeed wise.

There have been hundreds of scientific experiments demonstrating the dangers of groupthink, the positive impact of bringing different points of view to problems and of more participatory decision-making, yet mid-level managers often view diversity as “a distraction.” Many Institutional investors avoid that mistake. They realize the benefit of diversity but too many see proposals from retail shareowners and the prospect of their participation in nominating directors as "a distraction."

Working with a relatively small group of USPX members to develop the Model Proposal has been no easy task but the product is better than any one of us would have created alone. We consulted with many experts in the field but the result is mostly our creation after an investment of no money but considerable amount of time and effort.

If the proposal is successful and we actually begin to make nominations I suspect far more time and effort will go into choosing candidates. Yes, many of us are small shareowners. In any one company, one member might have $2,000 worth of stock (that may have been worth $5,000 last year) while another has $100,000 invested in the same company. However, critics should keep in mind it is our personal investment. We aren’t using other people’s money.

People may be surprised how much effort individuals are willing to put in when trying to protect their own investment. There will be much more to come as we announce targets and try to persuade other investors to vote for our proposals. In the meantime, I hope you will read our Model Proxy Access Proposal and the accompanying discussion, give it your full consideration and provide us with feedback.