Activist investors have battled for proxy access literally for decades. The most recent efforts started in 2009 with Congress mandating it as part of Dodd-Frank, and the SEC proposing the requisite regulations.

For as long as investors have battled, corporations has opposed, vehemently and at every turn. We’ve wondered, perhaps naively:

1. What’s so bad about proxy access that corporations would fight so hard against it?
   

Directors and executives would never answer this question directly and honestly, at least publicly, so we can only speculate. We guess that they fear investors much more than they care to admit.

Dos and Don’ts of Proxy Access

It’s not as if proxy access would automatically and universally bring down boards left and right. Proxy access will not:

1. ❖Guarantee that an investor’s candidate wins a director election.
   

2. ❖Give any special advantage to an investor’s candidate, relative to the company’s candidate, since the BoD still controls the structure and presentation of information in the proxy materials.
   

3. ❖Assure that an investor can even nominate the candidate, since these nominations are subject to all manner of other requirements, such as intricate advance notice deadlines.
   

It merely requires a corporation to include an investor candidate in the proxy materials. This entails a candidate’s biography, and importantly, inclusion on the company’s proxy card. This latter item would simplify director elections, since other investors need not sort out different proxy cards from the corporation and a nominating investor.

Proxy access does lowers the cost to investors of board elections, at least somewhat. With access to the corporate proxy, an investor need not hire a separate proxy solicitor to collect the investor’s proxy cards from other shareholders. Investors may still retain their own proxy solicitor, though, to persuade other shareholders to vote for the investor’s candidate on the corporate proxy card.

The Mystery Remains

So, why did corporations submit over 500 comment letters to the SEC opposing proxy access, ranging from scholarly to hostile? Why did the Business Roundtable and the US Chamber of Commerce pour considerable money and energy into an ultimately successful lawsuit opposing mandatory access? And, why do they oppose the recent shareholder proposals for privately-ordered proxy access, even the non-binding resolutions?

Three possible reasons occur to us.

1. 1.Directors and executives automatically oppose investors. The subject or the investor doesn’t matter. Anything investors want must be bad.
   

This might explain why corporations oppose proxy access. But, it doesn’t really tell us why they oppose it so fiercely. Corporations oppose lots of things that investors want, many with more impact (declassified BoDs), some with less (any environmental proposal). Since proxy access doesn’t guarantee that investors will win a board election, it doesn’t make sense that corporations would fight this hard to oppose on principle alone something so minor.

2. 2.Directors and executives are quite risk averse. They draw considerable rewards from corporations, with on average relatively little effort to earn them.  Perhaps they magnify any threat, even a minor one related to giving up to investors a few pages in the proxy materials.
   

As low as the risk of losing a directorship is, the cost to directors of opposing proxy access (of course using shareholder rather than personal funds) is even lower. Maybe they just don’t want to take any chances.

3. 3.Maybe there’s a very real, material possibility that incumbent directors would start to lose more elections.
   

In other words, maybe the risk of losing a directorship is not that low:

1. ❖Shareholders, at least institutional investors, pay more attention than before to BoD elections.
   

2. ❖Proxy advisors (ISS, Glass Lewis) expose complacency well.
   

3. ❖Friendly brokers can no longer vote their customer accounts in favor of incumbents.
   

4. ❖Aggrieved shareholders now more than ever will nominate competing director candidates. 
   

Perhaps the proxy card itself represents the last, mostly costly (to investors) barrier to dealing with entrenched corporate leadership.

Do corporate interests fear including competing director candidates alongside incumbents on the same ballot? Do directors lack the confidence in their own leadership and performance to withstand a challenge from a motivated shareholder?

We might be on to something, something that keeps directors and executives up at night. One could only hope that they start to worry as much about the performance of the company that they lead as they do losing their precious board seat.