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Jan. 15 — More than 30 law professors who focus on corporate and securities law published a joint statement Jan. 15 condemning SEC Commissioner Daniel Gallagher's recent paper suggesting that Harvard University may be liable for violating SEC Rule 14a-9, for including false and misleading statements in proxy soliciting materials.
In a Dec. 10 paper, Gallagher and former Commissioner Joseph A. Grundfest criticize the way the Harvard Shareholder Rights Project has used the shareholder proposal mechanism in its campaign to de-stagger corporate boards of directors.
Specifically, the authors claim that the group has relied heavily on empirical research that portrays staggering boards as categorically detrimental to shareholder interests, but fail to mention in the proposals the recent empirical research that contradicts that position. According to Gallagher and Grundfest, who now teaches at Stanford Law's Rock Center for Corporate Governance, this could be considered a material omission that violates Securities and Exchange Commission Rule 14a-9.
In the Jan. 15 statement, posted to the Harvard Law School Forum on Corporate Governance and Financial Regulation, professors from 17 law schools echoed previous criticism of the paper and urged Gallagher and Grundfest to withdraw their allegations.
According to the professors, the authors' allegations are “meritless” because the Harvard group's proposals are consistent with the SEC’s long-standing policy on shareholder proposals; allegedly none of the companies that have received the proposals have raised the authors' criticisms; and “there is no precedent for an enforcement action or private suit against shareholder proponents, let alone those assisting them, of the type that the paper urged against Harvard and the SRP.”
In the paper, Gallagher and Grundfest noted that a conclusion that the proposals are materially false and misleading should allow SEC staff “to issue no-action letters allowing companies to exclude [SRP proposals] from a company's proxy statement.” Additionally, the paper claims that such a conclusion “should also be sufficient to support the grant of declaratory relief in a federal action challenging the inclusion of the Harvard Proposal in the company's proxy.”
In the Jan. 15 statement, the professors write that they “are especially concerned that a sitting SEC Commissioner has chosen to issue such allegations without support from a prior investigation by the SEC staff and without due process of law.”
The group notes that it supports “a vigorous policy debate about the appropriate role of staggered boards and shareholder proposals in corporate and securities law,” but says the “baseless accusations” in the authors' paper should not be part of that debate.
The professors hail from law schools at Columbia, Harvard, Stanford and Yale universities, among others.
Gallagher declined to comment. Three former SEC officials, including former Chairman Harvey Pitt, issued a statement Jan. 15 backing Gallagher and saying the paper was consistent with the commissioner's duties.
The professors' statement is available at http://blogs.law.harvard.edu/corpgov/2015/01/15/statement-of-thirty-four-senior-corporate-and-securities-law-professors-urging-commissioner-gallagher-and-professor-grundfest-to-withdraw-their-allegations-against-harvard-and-the-srp/.
The paper is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2536586##.
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