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.