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December 28, 2011
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Home » SEC Chairmen Access: Ex-chiefs Clash on Proxy Issues

Pitt, Breeden spar in public discussion of corporate governance

By James C. Hyatt  

Two former SEC chairmen participating in a commission roundtable discussion differed sharply over proxy access and the role of corporate boards.

"There’s not a real problem,” declared Harvey Pitt (2001-2003), referring to the board-shareholder dynamic. “Trying to open up access to the proxy process, I think, leads to enormous complications.” Some SEC proxy access proposals are the “effective equivalent of labeling a company as being troubled, which I don’t think the government is capable of doing, or should do,”  Pitt said. As a recent federal appellate court ruling noted, states can give proxy access to shareholders, leaving the SEC in charge of procedural and disclosure issues, he added.

 And, Pitt said, the cost of a proxy contest will become “less and less an issue” as e-proxy procedures spread. Allowing shareholder groups to require companies to pay proxy solicitation costs is “tyranny, potentially, of the minority over the majority.” 

His assertion drew a sharp response from Richard Breeden (1989-1993), during the recent discussion of proxy access and governance issues by fsix former SEC chairmen that was called by Chairman Christopher Cox. It was the third annual get-together of the former SEC chieftains.


Breeden said: “The worst tyrannies of the worst of minorities are self-perpetuating boards of directors who spend endless amounts of shareholder money on their own self-perpetuation and claim we’re the company… Boards sit [in boardrooms] and do nothing when companies have declining performance, taking risks they don’t understand."


He noted that some prominent CEOs at financial companies have lost their jobs due to the subprime mortgage crisis,  but asked, “how many announcements of board members stepping down and being replaced have you seen? Very few.”


The federal government, Pitt responded, shouldn’t be in the “business of having to dictate which companies can be subject to attack.”


The Cox-initiated discussion, part of a broader discussion of  financial market regulatory issues, was polite, but produced these pointed, if not surprising, differences among he former SEC chiefs.


Governance is “an area that needs immediate attention,” declared Cox’s immediate predecessor, William Donaldson (2003-2005). “We’re pretty much behind the rest of the world in some of our processes.” He favors changes in SEC rules to give shareholders more access to corporate ballots.


Breeden, whose investment fund has launched a number of activist proxy fights, backed that view.  “There’s a tie-in to safety and soundness and systemic stability…when you have self-perpetuating boards” and governance practices “not responsive to failures.”


And poor governance can pose dangers to the overall financial system, Breeden said, if the “system makes it too difficult for the shareholders who are losing the money to replace people who are supposed to be protecting them and who are not doing their job.”


There are, he added, “far too many companies where board members, in power too long, have not been taking their job seriously enough.”


Things are getting better, insisted Roderick Hills (1975-1977), as more companies give independent directors more voice in selecting new board candidates.


Over time, Hills said, “we will have the kind of directors we want” in terms of lessening CEO board control. And he said “it’s not that hard to start a proxy fight…if a company is in that bad of a shape.”


Donaldson agreed the Sarbanes-Oxley act “has really improved” governance, “but I was questioning how you change boards, how you get new dimensions into those boards.”  There is, he said, “still a lot of frustration out there” from shareholders who “want to have more of a say.”


“The frustration,” chimed in David Ruder (1987-1989),  “comes from them not wanting to spend the money to have a proxy fight” while wanting the company to pay, via proposals to give shareholders proxy access. 

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