Osler, Hoskin & Harcourt LLP Distinguished Lecture debates shareholder proxy access and corporate governance

Photo by Randy deKleine-Stimpson

Professor Jill E. Fisch of the University of Pennsylvania delivers the lecture "Proxy Access and Limitations of SEC Rule-Making Process" in Macdonald Hall on September 24, 2010.

On September 24, Queen's Law welcomed Professor Jill E. Fisch, co-director of the Institute for Law and Economics from the University of Pennsylvania to commence the 2010-11 Osler, Hoskin & Harcourt LLP Distinguished Lectures in Business Law. She presented her paper entitled "Proxy Access and Limitations of SEC Rule-Making Process," which addresses recent developments in shareholder proxy access that emerged from corporate governance debates after the 2007 sub-prime mortgage economic crisis.

In early September, the United States Securities Exchange Commission (SEC) adopted new proxy access rules intended to facilitate the inclusion of shareholders' director nominations in an issuer's proxy materials.

During her enthusiastic presentation to students and faculty, Fisch argued that the newly implemented Federal proxy rules would bear limited effectiveness, as they were too hastily drafted and could prove to impede the ability of shareholders to hold company boards accountable.

"The big-picture question is really whether shareholders should get more power," she said. "And assuming we should give this [power to the shareholders], is proxy access the right way to do it?"

Traditionally, the idea of shareholder proxy voting has been vigorously opposed by businesses. The dissidents argue that it would confuse shareholders, disincentive people from serving as director candidates, and offer special interest groups leverage. Fisch suggested that the newly introduced SEC rules were rolled in as a "quick fix" response by the Federal government to political pressures, rather than assessing whether these were valid objections.

There are broader policy implications of defending shareholder proxy. This shareholder access is often linked with giving shareholders more power at the expense of management. As a result, the debates on corporate governance can be tremendously complicated, given that there are a variety of ways that the power can shift between the two groups.

Fisch's argument pointed out a fundamental flaw in the SEC rules: the rules were drafted on a technical basis, with limited consideration of the underlying objectives that the rules were intended to serve. By drafting rules without acknowledging the corporate governance framework or explaining that the rule was designed to give shareholders more power, the rules were not efficiently equipped to empower shareholder voice.

"The problem isn't just substance - it's also procedure," Fisch said, advancing the case for an alternative solution to the federal SEC rules as increased use of state law. Individual state laws are better suited for dealing with the corporate governance question of balance of power through incremental common law-making - they have mechanisms to allow the balance of power to adjust and allow some individual issuers to opt out of the default rules. If one state's laws are truly disadvantageous, the companies suffer and there can be a natural shift in power to other states. "In addition, there is the failsafe of regulatory competition," she said.

Fisch's fluid and witty lecture was followed by a question and answer period, where she fielded inquiries from the students and professors in attendance. She was quizzed on a number of issues regarding the direction of possible increased future litigation, the problem with a one-size-fits-all model, and discussion on the politicized climate. The lecture topic remains a contentious issue and her criticisms may still hold significant value: on October 3, the SEC issued an order granting a stay of the proxy access rule amendments pending judicial review.

"Professor Fisch's presentation was really insightful," said Todd Weisberg, Law '11, a student in the Osler Law Symposium seminar class taught by Professor Paul Miller, which critically analyzes scholarly papers on contemporary business topics. "I thought she offered an interesting perspective on the rule-making process in the United States and how the interplay between Federal and state laws could actually limit the effectiveness of the shareholder proxy vote."

After the lecture, students had the opportunity to speak with Fisch during a wine and cheese reception located in the student lounge.

In the distinguished business law lecture series generously sponsored by Osler, Hoskin & Harcourt LLP and directed by Professor Paul B. Miller, five internationally renowned academics delivered topical and scholarly papers in 2010-11. For more information on the other lecturers and to see a video and photo gallery of Professor Fisch's presentation, see http://law.queensu.ca/events/oslerDistinguishedLecturesInBusinessLaw.html.