The New York Times's "Deal Professor," Steven Davidoff, is back with a follow-up column to the one I posted about here the other day concerning the law firm Wachtell, Lipton, Rosen & Katz's effort to get the SEC to make it harder for hedge funds to buy up 5% of more of companies. He raises the issue of "empty voting," which happens "when a person votes shares in which they do not have an economic interest."
This concern is probably overblown, but if it needs addressing (a big "if"), a better approach than tightening the rules on disclosing accumulated positions would be to crack down on naked shorting and to be more vigilant in recording share transfers and ownership. If shareholders don't want someone with no economic interest voting, then they shouldn't lend their shares out to short-sellers.
If the SEC accepts the Wachtell proposal, the time period for a buyer to disclose he has accumulated 5% or more of a company's shares would be shortened to one day from ten. By contrast, companies have four days to report the hiring or firing of a CEO and two days to report the purchase or sale of stock by an insider. Is it really more important for shareholders to know instantly about a fund buying 5% of a company than it is for them to know that the CEO is fired or that a board member is selling shares?
The response could be fine, go to one-day disclosure for everything. But even so, the drawback, as usual, to a federal agency setting a uniform rule about these sorts of disclosures is that it immediately eliminates the regulated topic as a point of competition. Once the SEC makes a rule, it's harder for states to compete by experimenting with their own rules, or for companies to compete by being the best at shareholder transparency or disclosure.