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CALIFORNIA CORPORATE & SECURITIES LAW

The Shareholder Rights Project: Advice And Representation

Professor (and former SEC Commissioner) Joseph A. Grundfest and incumbent SEC Commissioner Daniel M. Gallagher have certainly fomented a spirited donnybrook over the Shareholder Rights Project at Harvard.  As discussed in this post,  they recently released a paper concluding, among other things, that the SRP’s “failure accurately to describe the current state of the academic literature can be characterized as a material omission that violates Rule 14a-9”.  This elicited a quick retort from Professor Jonathan R. Macey at Yale Law School, an alumnus of Harvard College and Yale Law School – SEC Commissioner, Law Professor Wrongfully Accuse SRP of Securities Fraud.  Less than a week later, Professor Grundfest issued his own response to Professor Macey.  The debate didn’t end there because Professor Macey yesterday issued this riposte.

Although tempted, I’m not wading into this academic titanomachy over the accuracy of the SRP’s proposal (I am, after all, just a lowly and erstwhile adjunct professor).  Nonetheless, it did remind me of a question that I had when the SRP was first announced.  What exactly does it do?  The SRP’s website unequivocally states that it “is representing and advising five institutional investors, four public pension funds and one foundation.”  More specifically, SRP states that it “provides SRP-represented investors with a range of services, including assistance in connection with selecting companies for proposal submission, designing proposals, engaging with companies, negotiating and executing agreements by companies to bring management declassification proposals, and presenting proposals at annual meetings”.  Elsewhere, the SRP refers to the pension funds as its “clients”.

Does this mean that the SRP has provided legal advice to its “clients”?  I asked the Harvard Law School this question and below is the reply that I received last Friday:

During the three years in which it operated, the SRP clinic did not engage in the practice of law.  The large investors (several public pension funds and a foundation) working with the SRP clinic had their own counsel and engaged the SRP to provide other services in connection with the submission of the proposals.  Each of the investors agreed to rely on their own counsel regarding legal issues, and agreed further that the investor and the SRP would not have an attorney-client relationship.

This seems inconsistent with at least some of the correspondence that I’ve found in the SEC’s Rule 14a-8 files.  For example, in a letter dated September 10, 2012, the Illinois State Board of Investment informed the SEC that it had authorized the SRP:

 [T]o act on behalf of ISBI in relation to the Proposal, including, without limitation, forwarding the Proposal to the Company, corresponding with the Company and the Securities and Exchange Commission with respect to the Proposal, engaging with the Company to reach a negotiated outcome, withdrawing the Proposal, presenting the Proposal, or arranging for its presentation by a designee of the SRP, at the Annual Meeting.

In a subsequent letter to the SEC’s Office of General Counsel, the SRP represented that based on the letter excerpted above it was “representing and advising ISBI in connection with the Proposal”.

Harvard Law School also informed me that the SRP has not been offered to students in the current academic year.  The school further advised me that the correct name of the SRP is the Shareholder Rights Project and not the Harvard Shareholder Rights Project.

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