The World Would Be a Far Better Place Without These Laws or Anything like Them

Ideally, the board members, selected by the shareholders, are served as the watchdog, overseeing the management, corporate development strategy and financial reports. The philosophy behind that is that management is only hired to help run the company, and it's the shareholder that owns the company. However, in practice, sometimes, the management will select board members and thus caused the conflict of interest and principal agent problem. The scandal of Enron (2001), WorldCom (2002) and Tyco (2002) taught the investors a good lesson and reshaped investors' confidence and faith in the setting of the board.

In the last decade, the Security and Exchange Commission has made few proposals to change how board is elected: In 2010, SEC voted 3-2 in favor of the "proxy access rule": shareholders who held 3% of a company's stock for three years will automatically gain the right to nominate their own director, which means the company has to include the names of all board nominees directly on the corporate ballots distributed before annual meetings (Investor Gain New Clout). However, the D.C Circuit Court of Appeals overturned the SEC rule: It's not the first time that the court has rejected SEC rules on similar grounds, but the forth time (SEC Smackdown).

Even though the details of the rule that SEC proposed differs time by time, it's clear that SEC tries to give investors more power to challenge the existing directors. Currently, if shareholders want to install their own directors, they have to bear all the costs, including fees to lawyers, professional proxy solicitor and the mailing and printing cost. If their proposal fails, they won't get any return. Under SEC's proposal, the company carries the cost and the shareholder does carry any risk to make the proposal of change directors (SEC Set to Open Up Proxy Process).

My argument is that we should never let all the change that SEC has proposed to happen. SEC's proposed "3% stake for 3 year" is groundless and a waste of resources.

First of all, the 3% is arbitrary. The 3% discriminates thousands and thousands of individual shareholders, who holds the stock for less than 3%. Under the new rule, these individual shareholders have to indirectly pay for the proxy fight, but do not have the right to nominate. Cleary, the proposed change is not benefiting ALL the shareholders. The author of SEC Smackdown identified union-backed state pension funds as the major beneficiary for the rule. I completely agree with the author that state pension funds have the potential to leverage the rule to satisfy its hidden agenda: asking for additional benefit for unionized employees, which is clearly unrelated to shareholder value.

Secondly, the 3-year timeframe is arbitrary. Why SEC believes that holding the stock for 3 years would align the shareholder interest with the long-term interest of the company and thus won't