In an editorial titled Union Proxies (subscription required), the Wall Street Journal argues that the SEC's decision to allow companies to bar third-party candidates for the board of directors from the ballot was actually the right move.

I argued just the opposite here and here, but the Journal does bring up a point that's worth responding to:

"Access" sounds good in theory. But in practice, what really matters is whether such proxy slates serve the interests of all shareholders, or merely a few. In the case of proxy challenges, the main agitators are unions and their political allies who run public pension funds. These groups have their own political agendas that they want companies to pursue, and those agendas may or may not serve the larger interest of increasing shareholder value. In the worst case, such agitation could empower special-interests on boards that reduce a company's value.

Here's the flaw in the Journal's reasoning: If the union-backed pension funds are supporting ideas that are wildly out of touch with the interests of other shareholders, then those shareholders have a right to vote against them, and presumably they would.

And if the majority of a company's shareholders vote for the candidate, then they should gain a seat on the board. This is basically about voting rights: shareholders in public companies should have a right to put the people they want on the board of directors. Denying proxy access because many candidates would have special interests is like arguing that union members shouldn't be allowed to vote or run in political elections because they have ulterior motives. Maybe they do, but that's up to the voters to decide!

We've seen enough examples of supine boards of directors and managers who stayed in their roles as Chief Value Destroyer for far too long because of these boards. Proxy access would have been a great way to make directors more accountable to shareholders, and it's a really sad day for corporate governance when the SEC gets in the way of that.