August 21, 2009
A group of Harvard Law School and Harvard Business School professors submitted an open letter to the Securities and Exchange Commission last week offering changes to a new SEC policy proposal that would allow shareholders to nominate directors.
“We support the broad intent of the SEC’s proposed rule – to give shareholders a means to have more influence on who serves on the boards of the companies in which they have ownership and support an SEC rule facilitating access,” the letter states.
The professors propose increasing the threshold number of shareholders needed in order to have a director’s nomination included on the corporation’s proxy card. Under the SEC’s proposed rule, a 1% threshold is required, which the professors argue is too low because, “it potentially allows for too many contests, some of which will distract boards from the real work of leading their companies.” The group encourages a threshold number somewhere between 5 and 10%.
In addition, the group argues for an “opt out” clause to be included in the rule. If this new clause is adopted, a company could opt out of the threshold rule if a majority of shareholders vote that way.
HLS Professors Robert Clark ’72, John Coates, Reinier Kraakman, Mark Roe ’75, and Guhan Subramanian ’98, along with HBS Professors Jay Lorsch, Rakesh Khurana, Raymond Gilmartin, Rajiv Lal, and Joseph Bower signed the letter.
The letter added to an already heated debate about new SEC regulations that would give shareholders more rights. A group of 80 law professors previously submitted a letter in support of the SEC’s proposal, while a large group of the country’s top law firms submitted letters against the proposals.