From Legitimacy to Logic: Reconstructing Proxy Regulation

Abstract

On October 16, 1992, after a comprehensive review of its system of proxy regulation and after two separate amendment proposals that drew more than 1700 letters of comment from the public, the Securities and Exchange Commission (the "Commission" or the "SEC") voted to reform the federal proxy rules. The reforms were "intended to facilitate shareholder communications and to enhance informed proxy voting, and to reduce the cost of compliance with the proxy rules for all persons engaged in a proxy solicitation.' The SEC explained the amendments by stating that the rules were "impeding shareholder communication and participation in the corporate governance process" and were "run[ning] exactly contrary to the best interests of shareholders.' SEC Chairman Richard Breeden further described the amendments as effectuating the shareholder's constitutional right to free speech. The October 1992 amendments are but the latest in a series of changes to proxy rules that began in 1935 as a simple list of disclosure requirements.' Since that time, the federal proxy rules have generated frequent criticism.' The October 1992 revisions are no exception. From the outset of the three-year process that resulted in the adoption of these reforms, the business and legal communities have criticized the changes effectuated by the amendments as, alternatively, going too far and replacing a system that was working properly; not going far enough and frustrating the exercise of shareholder democracy; and embodying principles of political compromise rather than a cohesive vision of corporate governance.

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