Dodd-Frank included new federal rules regarding proxy access, which have significant problems. Now a new paper by Becker, Bergstresser and Subramanian provides an additional argument against these rules, Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable Challenge. Here’s the abstract:
We measure the value of shareholder proxy access by using a recent development in the ability of shareholders to nominate candidates for board seats. The SEC’s October 4, 2010 announcement that it would significantly delay implementation of its August 2010 proxy access rule was unexpected and provides a useful natural experiment. Because firms with substantial institutional ownership would have been most affected by the SEC’s now-delayed changes, we use the share and composition of institutional investors to sort firms into those more and less affected by the October 4 news. We find that firms that would have been most affected by proxy access, as measured by institutional ownership, lost value. The value drop was 17 basis points for a 10 percentage point change in large shareholder ownership, and 66 basis points for the same change in activist institution ownership. These results suggest that financial markets placed a positive value on shareholder access, as implemented in the SEC’s August 2010 Rule.
Interesting. How is this an argument against the federal rules? Well, I haven’t examined the data, but on the face of it, doesn’t this mean that we don’t need federal law? Can’t we just rely on state law or contracts? After all, if the market can price proxy access, then investors get what they pay for and firms have incentives to provide it, right?