Vanderbilt Law Review

First Page



The current debate over shareholder access to the issuer's proxy statement for the purpose of making director nominations is both overstated in its importance and misses the serious issue in question. The Securities and Exchange Commission's ("SEC's") new e- proxy rules, which permit reliance on proxy materials posted on a website, should substantially reduce the production and distribution cost differences between a meaningful contest waged via the issuer's proxy and a freestanding proxy solicitation. No matter which avenue is used, however, the serious question relates to the appropriate disclosure required of a shareholder nominator. Should the nominator be subject to the broad-ranging disclosure requirements now associated with the freestanding contest? Or should there be curtailed disclosure for a nominator (who disavows control motives) of a limited number of directors whose election will not change control? The inescapable costs lie in disclosure, not so much because of the drafting costs, but because of the liability standard associated with the current proxy solicitation rules. A party may be subject to a private suit for material misstatements or omissions in connection with a solicitation even without a showing of scienter. Disclosure under such a regime entails not only the up-front costs of precaution, but also the uncertain (and potentially high) costs of litigation. These costs-not the production, distribution, or other solicitation costs in an e-proxy- eligible world-will constrain director nominations made by a "good governance" activist without a large stake or a control motive. The current regulatory round associated with the SEC's sidestepping of the Second Circuit's proxy access opinion in AFSCME v. AIG1 is a sideshow, diverting attention from this important issue.

Part I of this Essay briefly describes what shareholder access to the issuer's proxy statement entails. Part II summarizes how we have come to the present regulatory moment. Part III describes the e- proxy rules that should lead us to refocus the debate. Part IV sets up the key question: what is the appropriate disclosure (in content and liability risk) to require of a shareholder nominator? One obvious possible distinction is between nominators with and without control motives; another is between instances in which the election of shareholder nominees would or would not shift control of the board.