Proxy access has suddenly leap-frogged to the top of seemingly everyone’s corporate governance list after various setbacks over the past few years. In fact, a March 17th Wall Street Journal article quoted Anne Simpson, head of corporate governance at Calpers, as describing recent developments as a “sea change” in favor of proxy access. Scott M. Stringer, the New York City Comptroller, is reported to have said, “We have passed the tipping point on proxy access. It’s no longer a question of ‘if,’ as much as it is ‘when.’” Although this issue has taken many twists and turns and is likely to continue to do so for a while, they may be right.

A brief history…

Proxy access (meaning the ability of shareholders to include their director nominees on the company’s proxy ballot) has been an important issue among activist investors for nearly a decade. The concept picked up steam in 2010 when the SEC adopted a controversial proxy access rule pursuant to the Dodd-Frank Act. That rule was promptly vacated by a decision of the U.S. Court of Appeals for the District of Columbia Circuit, which the SEC chose not to appeal. Left intact, however, was the SEC’s related amendment to its Rule 14-8, which allows eligible shareholders to submit for inclusion in a company’s proxy materials proposals designed to facilitate proxy access.

Amended Rule 14-8 unleashed a new category of proxy access shareholder proposals, which companies began trying to fend off. Activist momentum was fed by no-action relief granted last fall allowing Whole Foods Market, Inc. to exclude a proxy access proposal from its proxy statement based on Rule 14a-8(i)(9), which allows such exclusions if the proposal is in direct conflict with a management proposal. In that case, Whole Foods’ management had quickly proposed a significantly different, less aggressive proxy access alternative in a transparent attempt to thwart the activist’s proposal. This strategy generated widespread dismay among activists, who were not shy about complaining publically and loudly to the SEC and Congress.

Then in January of this year, to the surprise of many, SEC Chair Mary Jo White directed the staff to review the issue. In response, the staff announced that it would express no views throughout the current proxy season regarding Rule 14a-8(i)(9) while it conducted the mandated review. (See this Doug’s Note.)

Now, according to the Wall Street Journal, the floodgates of proxy access are beginning to open wide. It reports that many companies have agreed in recent weeks to support proxy access so long as certain ownership conditions are met (for example, owning at least 3% of the company’s stock for at least three years). And TIAA-CREF reportedly sent letters to its top 100 holdings urging them to voluntarily endorse proxy access sooner, rather than later.

What might this mean?

This apparent movement toward proxy access reminds me of the shift from plurality to majority voting for directors a while back. You may recall that it followed a similar pattern: early activist voices crying in the wilderness, then a relatively organized shareholder proposal campaign for a number of years, followed by voluntary adoption by a limited number of large companies, and then sudden widespread acceptance as best corporate practice—all without specific rulemaking.

It would not be surprising to see proxy access follow a similar path. We can expect broader and more strident efforts by activists to “encourage” companies to adopt “market standard” proxy access bylaws, as well as more capitulations to such requests. Shareholder advisory services will continue to have their say, as well.

It would be prudent at this stage for each company to proactively evaluate the profile of its own shareholder base and corporate governance philosophy to determine whether it is advisable to voluntarily get out in front of this issue, or at least to be prepared when the issue arises. This would be an excellent topic of discussion for any upcoming governance roadshows or other shareholder engagement. The next few months are likely to be interesting in this respect.