NCPERS Speak Against SEC Proposals That Trim Shareholder Rights

• By: admin
• On: 03/04/2020 14:48:59
• In: News
• Comments: 0

NCPERS was in good company as it raised strong objections to plans by the Securities and Exchange Commission to pare back shareholder rights under proxy rules.

The SEC received a tidal wave of critical comment on its proposals to change a pair of technical but significant regulations. The first proposal, the shareholder proposal rule, would make it harder for many shareholders to submit proposals for inclusion in proxy materials. The second, the proxy advisor rule, would add unnecessary disclosure hurdles for firms that use independent proxy voting advice. The SEC received more than 1,100 comment letters and more than 640 comment letters for the respective proposals before the February 3 deadline.

NCPERS argued that the proposed shareholder proposal rule, amending Exchange Act Rule 14a-8, should be revised, while the proxy voting advice rule should be scrapped altogether.

“Public pension plans owe a duty of care and trust to millions of public sector workers and retirees, and are committed to prudently exercising their rights as shareholders,” said Hank Kim, executive director and chief counsel for NCPERS. “We believe the SEC is tipping the scales much too far in the favor of corporations with this pair of proposals. If implemented, these amendments would have a seriously negative impact on state and local governmental pension plans, and we urge the commission to reconsider.”

NCPERS identified several key concerns under the shareholder proposal rule. Specifically, NCPERS criticized the SEC's plan to impose a tiered system of eligibility to submit proxy proposals, and said a proposal to limit proposals from a single shareholder or representative to one per proxy season would adversely affect shareholders. NCPERS also rejected a proposal to increase limits on resubmitting proxy statements as unwarranted.

As for the proxy voting advice rule, NCPERS argued it should be withdrawn because it would hinder state and local governmental pensions' access to timely, independent corporate governance research and would undermine the independence of proxy voting advice.

A trio of Morningstar executives said in comments to the SEC that the shareholder proposal rule “will stifle investors' voices.” Additionally, they argued, the proxy voting advice rule currently in place does not overburden corporations. Only 831 shareholder proposals were submitted to U.S. companies in 2018, and this figure has fluctuated minimally over the past two decades, with a range from 745 to 1,136 proposals. “The annual cost for permitting these proposals is estimated to be around $137,000 per company, an amount less than these companies often spend on the salary of one employee,” the Morningstar commenters wrote.

Pension fund officials, along with many other investment managers, came out forcefully against the proposals.

“We are very concerned about the [proposal]. We think it's a bad idea,” said Liz Gordon, executive director of corporate governance at the New York State Common Retirement Fund, the third-largest public pension scheme in the US, told the Financial Times. “We think they're trying to fix a problem that doesn't exist.”

Ron Baker, executive director of the Colorado Public Employees' Retirement Association, voiced concern in a February 3 comment letter that the proposed amendments to Rule14a-8 would undermine the value of shareholder rights and would pay more attention to the costs to issuers rather than the benefits to investors.

Aeisha Mastagni, a portfolio manager for California State Teachers' Retirement System, argued in a February 3 letter that while “the basic proxy infrastructure is desperately in need of reform,” both proposals missed the mark widely. CalSTRS said it disagrees with the premise of the proxy voting advice rule, which assumes that proxy advisors could be “providing inaccurate or incomplete voting advice (including the failure to disclose material conflicts of interest) that could be relied upon to the detriment of investors.” Regarding shareholder proposals, CalSTRS argued that current Rule 14a-8 is working fairly and equitably. CalSTRS also noted that fewer than 2% of voting items at U.S. shareholder meetings are shareholder proposals, “prompting us to ask whether the rulemaking is creating a problem that does not exist and therefore does not need to be fixed.”