Thursday, November 29, 2007

Communists and the SEC Proxy Access vote

We attended the SECs open meeting yesterday.

Seated directly behind us were Mr. Thomas Lehner, a representative from the Business Roundtable and Ms. Amy Goodman, a former Chief of the SEC Task Force on Corporate Accountability and, currently, a Partner at Gibson, Dunn and Crutcher. (According to a press release issued when Mr Lehner testified at an SEC-sponsored Roundtable on Proxy Access, the Financial Times cited the Business Rountable as "the most influential chief executive lobbying group in the U.S.") The two were in good spirits, celebrating what they perceived to be an impending victory with respect to the vote on Shareholder Proposals relating to the Election of Directors.

At one point in their conversation, we believe they discussed branding opponents to the Shareholder Proposal vote as "communists." They may have been referring to the AFL-CIO and related labor interests. We bring this up to note the type of unfair, unethical tactics used by opponents to open proxy access.

Of course, they may have only been kidding.

Items on the Agenda were:

1. Electronic Shareholder Forums
2. Shareholder Proposals relating to the Election of Directors

Item One was approved in a 4 to 0 vote. Several questions remain unanswered, including the following:
a. How will identity fraud issues be handled?
b. What strategies will be adopted to limit someone from spamming the Forums?
c. How will investors choose between competing Forums?
d. Will these Forums be susceptible to company management censorship or abuse? How, when and why would this occur?

Item Two (Shareholder Proposals Relating to the Election of Directors. [Release No. 34-56161; File No. S7-17-07]) was approved in a 3 to 1 vote, with Commissioner Nazareth voting against. The item was approved in substantially the format issued, and can be found online at:

This would exclude shareholder proposals if:

Proposed Amendments to Rule 14a-8(i)(8)

"If the proposal relates to a nomination or an election for membership on the company’s board of directors or analogous governing body or a procedure for such nomination or election."

The regulation will go into effect 30 days after publication in the Federal Register. We expect an implementation date of 12/31/2007 or 1/4/2008.

Monday, November 26, 2007

Black Leadership Missing in SEC Proxy Debate

We note that none of the policy groups claiming to speak for African Americans have submitted comments concerning the SEC's controversial shareholders rights proposal. According to the Washington Post,

"The leader of the Securities and Exchange Commission (Christopher Cox) told lawmakers yesterday that he is poised to move ahead with a controversial shareholders rights proposal, drawing sharp criticism from Democratic lawmakers and officials from unions and pension funds. In July, Cox voted to seek comment on two conflicting proposals. One would codify the way the SEC has typically done business in a manner that allows companies to exclude investor proposals from proxies sent to a company's shareholders. The second, broader plan would have allowed investors that hold at least 5 percent of a company's stock greater leeway in proposing board candidates in exchange for more disclosure about their operations."

According to another source, the "SEC chief cites legal ‘confusion’ as reason to curtail shareholders’ ability to nominate directors, but says he’ll revisit the issue in spring."

Shareholder proposals have helped to increase the number of women and minorities serving on corporate boards. They have also helped encourage diversity initiatives at these same corporations.

To ignore the risk these SEC proposals pose to efforts to better manage corporations is to ignore demographic trends. We invited the Operation PUSH sponsored Wall Street Project to a meeting we had on 11/20/07 with staff in the SEC Chairman's Office to discuss the matter. We never received a reply. Of course, we went without him, (or the Urban League or the NAACP, for that matter.)

Of course, these groups may comment in a year or two, once the more restrictive of the two proposals has been adopted and black board membership and black employment starts to fall.

This is the lack of vision that ultimately leads to reduced income and reduced prospects for the country as a whole, and for African Americans.

Where there is no vision....

Friday, November 16, 2007

Senate Banking Committee hearing on Proxy Access

On November 14th, the Senate Banking Committee held a hearing on Proxy Access. The hearing was chaired by Senator Jack Reed.

In his testimony, SEC Chairman Christopher Cox noted:

" Last autumn, the U.S. Court of Appeals for the Second Circuit invalidated the SEC’s interpretation of our existing proxy access rule that had been applied at least since 1990. Indeed, in the SEC’s view, that interpretation had been in effect since 1976. But the court found the SEC’s view since 1990 to be inconsistent with its prior interpretation. At the same time, the court said that it would “take no side in the policy debate regarding shareholder access to the corporate ballot,” noting that “such issues are appropriately the province of the SEC.” This decision applies only in one of the 12 judicial circuits in America. And it has created great uncertainty and danger for every stakeholder in our public markets.

This uncertainty is compounded by a recent decision of the U.S. Supreme Court, which creates doubt about the state of affairs even in the Second Circuit. The Supreme Court reversed another panel of the Second Circuit in a similar case of an agency that changed its interpretation of its rules. Just as in the proxy access case, the Second Circuit rejected the agency's more recent interpretation. Justice Breyer’s opinion for the unanimous Court held that the agency’s interpretation of its own regulations is controlling unless plainly erroneous."

Senator Reed, chairing the hearing in Senator Dodd's absence, appeared stunned by this line of reasoning:

1. Reed implied that citing the 2nd Court of Appeals decision and the Supreme Court ruling was a sign desperation. The Commission is stretching the limits of legal rationality to find any justification, however tenuous, that will support approving the more restrictive proxy access proposal.

2. Reed clearly believed there is no truth to the claim (as with other claims concerning the existence of WMD in Iraq, the use of torture, lack of warning about Katrina, etc.), that heightened uncertainty requires the SEC to act now.

3. The Senator acknowledged that he is powerless to do anything to stop the SEC from approving the more restrictive proxy access proposal. Thus, we believe they will do so, despite SEC claims that "shareholder proxy access is 'a work in progress' that could end with a plan different from proposals floated this summer." We regard this statement a "head fake," designed to freeze opponents in their tracks.

We note CalPERS today announced that "Eight of the leading U.S. and international pension funds representing more than $300 billion in U.S. public equities, and the Council of Institutional Investors, with member assets exceeding $3 trillion, will hold a telephonic press conference to make an announcement and discuss the issue of access to corporate ballots to nominate directors and pending proposals before the U.S. Securities & Exchange Commission."

We believe they may announce their intention to bring a lawsuit, thus blocking (or at least slowing) any changes to current proxy access rules.

Friday, November 9, 2007

On Shareholder Proposals: Update

After hearing from a few people, let me clarify:

1. The purpose of the SEC may be to protect investors, but on April 28, 2003, every major US investment bank was found to have aided and abetted efforts to defraud investors. Ethical problems have continued and grown worse: since late 2006, 182 major U.S. lending operations have "imploded" due to subprime lending issues. Most people losing their homes are low to moderate income people of color. This is no accident. Those with new ideas and solutions to the problem have been carefully excluded from the discussion, due to the same bigotry that gave rise to it. This, too, is no accident. We do not mean to sound cynical. We see what is, not what we would like to see.

2. The real issue is Hedge Funds, nothing else. In our comments to the SEC on the matter, we noted: "Any significant concern about proxy access rests with hedge funds, by their nature neither long term investors or sensitive to broader social concerns. The strategy of using proxy access to enhance shareholder value has been co-opted by certain hedge funds, now using the practice for selfish, potentially destructive purposes." As above, those with new ideas and solutions to the problem have been carefully excluded from the discussion. Again, this is no accident.

3. Restricting proxy access until something can be done about hedge funds may not be a bad thing, as long as full access is returned to small shareholders at some point.

4. All other concerns (special interest directors, electronic forums, state's rights, 5% ownership thresholds, etc.) are, for the most part, irrelevant.

The problem is the iceberg, not the lifeboats.

Thursday, November 8, 2007

On Shareholder Proposals: the Big Dogs Weigh In

In a November 1st letter to the Chairman of the SEC, Christopher Cox, 9 members of the Senate Banking Committee, or almost ten percent of the full U.S. Senate, wrote urging the SEC to maintain the current set of proxy rules and regulations. In the view of these members, "neither proposal should be adopted."

(For our response, see:

Current federal law leaves regulation of the proxy process up to the SEC. Period. In a side conversation at a House Financial Services Committee hearing on Proxy Access held on 9/27, we warned Tim Smith, Chairman of the Social Investing Forum against believing that pushing to hold a hearing or getting letters written will block implementation of one of the two proposed rules. The issue is similar to what occurred in Florida (2000) and Ohio (2004:) what matters is the relevant vote, not the popular vote. In this case, the relevant vote is that of the Commission. Unless you have a seat on the Commission, you don't get to vote on the matter.

The views of the other 91 U.S. Senators are not known at this time. This means there is a good chance Mr. Cox will be able to approve one of these proposals and stay in his position, at least for the next twelve months.

We see nothing here to change our opinion that the more restrictive of the two proposals, S7-17-07 and S7-16-07, will be adopted.

Wednesday, November 7, 2007

Urban Trust Bank links success to business lenders

In a November 2, 2007 article in the Tampa Bay Business Journal, Senior writer Margie Manning writes that "Urban Trust Bank expects to provide an alternative business lending option with its two new offices in the Tampa Bay area."

We were quoted in the article stating that " Minority owned banks in general have struggled with business lending,"

Urban Trust "opened branches in the Wal-Mart SuperCenters in Gibsonton and Palmetto Oct. 29."

Tuesday, November 6, 2007

Preserving Minority Banks

House Financial Services Committee
Oversight and Investigations Subcommittee
Hearing on Preserving Minority Banks

On October 30, 2007, the House held a hearing on Minority Banks. While we did not testify, the ranking Republican member, Representative Gary Miller (CA), read extensive portions of our research into the record.

We have called for the development of tools to get capital into the best of these institutions, those with solid financial performance and outstanding performance in helping to meet community credit needs.