Posted by David Bernstein:
Roberta Romano on the SEC's Proxy Access Initiative:
http://volokh.com/archives/archive_2009_05_24-2009_05_30.shtml#1243463257
I thought the following informative and rather pointed email from Yale
Law Professor Roberta Romano would be of interest to many readers
(published with her permission):
I thought that I would pass along my reaction to a [1]New York
Times article by Gretchen Morgenson in Sunday's business
section..... The article in question flunks Corporate Governance
101. Morgenson cites a study by the IRRC as supporting the SEC's
proxy access initiative (a regulation proposed by the SEC by a 3:2
vote last week that has been promoted by union funds for quite some
time). According to Morgenson, the study found a positive impact
from dissidents elected in proxy fights. That is not news; it is
well-established in the empirical literature that proxy fights
increase value. Indeed, firms experience positive price effects
from proxy fights even when dissidents lose.
But those data have no relevance to the proxy access proposal.
Proxy fights require challengers to spend their own resources to
get on the ballot and solicit votes; proxy access nominations
require no such expenditures. In fact, the overwhelming empirical
evidence on shareholder proposals, which are also for free and the
model for proxy access, indicates that they do not add value. This
should not be a surprise: the incentive for getting things right
are very different when something is for free. Having to put your
money where your mouth is, so to speak, means that you have to have
a good grasp on how to resolve perceived problems of a firm, and
select board nominees who will be effective. You also need to have
a nontrivial stake in a company to engage in such activity, for the
cost-benefit to work, and thus, also not surprisingly, the IRRC
study Morgenson cites finds the performance impact was higher the
greater the dissidents' stake. The proposed proxy access requires
no expenditures, and trivial holdings (letting shareholders
aggregate their holdings to reach specified levels, depending on
firm size). Understanding the difference in incentives provided by
the two processes is fundamental to understanding corporate
governance; only someone woefully ignorant or intellectually
dishonest would regard that data as relevant to the SEC's proposal.
There is nothing wrong with a journalist expressing a point of
view, as Morgenson does, with respect to the efficacy of the SEC's
proxy access proposal. But it is troubling when a prominent
journalist does not consider a requisite part of her job to be
seeking out opposing views (i.e., critics of proxy access), if not
to provide balance to a piece, to ensure that she has not been
misinformed by a like-minded source, and writes something, such as
Sunday's column, which is an embarrassment.
References
1. http://www.nytimes.com/2009/05/24/business/24gret.html
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