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From Securities Regulation Daily, December 3, 2013

Chair White talks of shareholder activism ahead of SEC proxy adviser roundtable

By Mark S. Nelson, J.D.

SEC Chair Mary Jo White said today that shareholder activism has evolved from its 1980s-era “negative connotation” to signify a more proactive type of shareholder involvement in holding managements accountable. Companies now respond differently to activist proposals, but it remains to be seen if recent activist efforts will improve governance and shareholder value and what role proxy advisers should play. Chair White spoke at the 10th Annual Transatlantic Corporate Governance Dialogue (TCGD) in Washington, D.C.

“To be sure, some critics still say that activists are often motivated by short-termism, and not focused on long-term growth and the strength of a company,” said White. “The landscape has unquestionably changed,” she added.

Dodd-Frank reforms. Chair White noted that many recent developments in shareholder activism resulted from enactment of the Dodd-Frank Act in 2010. The Act required the SEC to implement rules for advisory votes on executive pay, proxy access, compensation committee standards, clawbacks, and new disclosures about pay ratios and hedging transactions.

“These changes were supported by so-called shareholder activist groups in pursuit of more influence on corporate governance,” she said.

Shareholders. Chair White noted that shareholders can play a key role in helping to improve governance. According to White, companies should go beyond required annual statements and meetings to engage shareholders. “It should mean proactive outreach, and clear, direct, and honest communications about how and why decisions are being made,” White said.

Chair White cited the Dodd-Frank Act’s mandated advisory say-on-pay vote as an example of how the SEC’s rules have changed how companies engage with shareholders. She noted that “no” votes pressure companies to explain executive pay packages more thoroughly in their public disclosures. “No” votes also ratchet-up public relations pressure on companies.

Proxy advisers. Proxy advisory firms, Chair White noted, can be viewed as both helping and hurting shareholders. To the extent these firms educate shareholders about companies, they may provide a valuable service. Proxy advisers, however, may exert too much power because their views often take precedence over shareholders’ independent assessments.

Chair White said the SEC is still evaluating comments it received on its 2010 proxy system concept release. She noted that the European Securities Market Authority recently declined to take regulatory action after a report on European proxy advisers, but instead recommended that proxy advisers mull a code of conduct. Chair White also said discussions at the TCGD would give attendees yet another forum ahead of this week’s SEC roundtable discussion of proxy advisers.

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