Tuesday, August 18, 2009

Forum Comments on Proxy Access Proposal

Yesterday, the Forum submitted a comment letter on the first of two proxy rule proposals issued by the SEC this summer, "Facilitating Shareholder Director Nominations.As we summarized in our July 1, 2009 post, "SEC Proposes Shareholder Access to Director Nominations," the proposed rule is designed to enhance shareholders’ ability to nominate directors, within certain ownership limitations. Because the proposal applies to mutual funds, the Forum submitted a comment letter on behalf of independent fund directors.  Though the letter indicates that the Forum shares the Commission’s desire to ensure that boards of directors are responsive to the needs of shareholders, and agrees that funds should be treated similarly to operating companies with respect to shareholder access to proxy statements, it also lays out some fundamental differences between mutual funds and operating companies the Commission and investors should keep in mind:
  • [O]pen-end funds, the dominant form of investment companies, rarely solicit proxies and most open-end fund boards oversee multiple separate funds within a complex, thereby achieving various efficiencies and benefits of scale.

  • [M]utual funds are generally not required to hold annual shareholder meetings. Funds are required to solicit proxies to elect or reelect their boards only when less than two-thirds of the sitting directors have been elected by shareholders.

  • While a publicly traded operating company is a single corporate entity, mutual funds are often part of complexes composed of numerous separate investment companies. The different investment companies, however, generally do not each have a distinct set of directors overseeing each separate investment company.
The Forum's letter further notes that, given these differences and the resulting efficiencies and benefits to shareholders,
"in order to exercise their vote intelligently and responsibly, fund shareholders must weigh the potential costs of effectively altering the structure of their fund’s board against any perceived benefits."

The full text of the Forum's comment letter is available at:  http://www.mfdf.com/site/pages/documents/MFDFCommentletter-FacilitatingShareholderDirectorNomination.pdf

The full text of the rule proposal, "Facilitating Shareholder Director Nominations," is available at:  http://sec.gov/rules/proposed/2009/33-9046fr.pdf

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