By Yin Wilczek
June 23 — New York City pension funds have called on the Securities and Exchange Commission to narrowly interpret its “conflicting resolution” exemption, saying the approach would achieve “proper balance.”
In a June 17 letter to Keith Higgins, director of the SEC Division of Corporation Finance, the funds cited the “unprecedented ‘real world' experiment” involving proxy access resolutions filed this year by New York City Comptroller Scott Stringer.
“The results of the 2015 proxy season demonstrate that such a narrow interpretation would adhere to the mandate of the Rule, would not result in ‘directly conflicting' proposals, would not result in ‘confusing or ambiguous results,' and would avoid the specter of gamesmanship in the market,” they said. “In contrast, a broad interpretation would frustrate the use of private ordering on matters such as proxy access, by preventing shareowners from communicating to management useful information on their preferences.”
The letter offers detailed statistics of how Stringer's access resolutions have performed as of June 16. According to the letter, 64.4 percent of 59 of Stringer's access proposals have passed, with an average support of 57 percent.
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The total percentage of the proposals receiving 45 percent or higher of shareholder support is 83.05 percent, the letter states.
The letter also noted that of the proposals receiving less than majority support, the average vote remained above 40 percent, “despite board opposition and high insider ownership at several companies.”
“We know of few, if any, other shareowner resolution topics that have garnered the same level of immediate and substantial support and traction among investors as has the 3 percent/3 year/25 percent model of the proxy access proposal,” the letter states.
The funds also argued that the SEC has the authority for a narrow reading without notice-and-comment under the Administrative Procedure Act, citing the U.S. Supreme Court's March decision in Perez v. Mortgage Bankers Association, 135 S.Ct. 1199.
The letter was signed by Assistant New York City Comptroller Michael Garland on behalf of the New York City Employees' Retirement System, the Teachers' Retirement System of New York, the New York City Police Pension Fund, the New York City Fire Department Pension Fund and the New York City Board of Education Retirement System.
The SEC staff is reviewing 1934 Securities Exchange Act Rule 14a-8(i)(9) and no-action relief under the provision has been suspended since January.
The SEC has asked for comments on its review. Other commenters previously urged the SEC to reinstate the rule without change, also arguing that any modifications may require APA rulemaking.
Stringer's access proposals have been credited for driving up overall support for shareholder resolutions this season.
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The letter is available at http://www.sec.gov/comments/i9review/i9review-7.pdf.
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