Critique of Harvard by SEC's Gallagher sparks rare academic spat

Reuters News
Posted: Jan 15, 2015 6:43 PM

By Ross Kerber

BOSTON (Reuters) - High-profile professors and securities lawyers traded jabs Thursday on the merits of a Harvard University legal project, a scholarly slugfest playing out in the normally staid academic sector tracking corporate governance.

At issue is a research paper from December by SEC Commissioner Daniel Gallagher and Stanford University professor Joseph Grundfest, a former SEC commissioner, titled "Did Harvard Violate Federal Securities Law? The Campaign Against Classified Boards of Directors."

The paper suggested the SEC could take legal action against the school in Cambridge, Massachusetts. The sharp language intensified an otherwise dry academic dispute, pitting colleagues against each other.

One professor charged that the hint of SEC action was an attempt to "chill public debate" on an important issue.

The paper faults a Harvard Law School project that helped big investors press companies to make directors face elections annually, instead of every two or three years. The trend also means activists can challenge entire boards at once.

Harvard's project advised the activist investors and helped them draw up resolutions.

But shareholder proposals using the Harvard project's wording were so one-sided in describing research on the area that they could be "false and misleading," the authors wrote.

The group of 34 senior law professors called the paper's charges "deeply flawed" and urged the authors to withdraw their accusations. In their statement posted on Thursday to a Harvard Law School online forum, the professors acknowledged that they hold differing views on the merits of annual elections.

Well-known signers included John Coffee of Columbia University and Stanford professor Ronald Gilson. Another, James Cox of Duke Law School, said in an interview the paper amounts to an attempt to silence corporate critics.

"A commissioner shouldn't be able to use his position to chill public debate on important governance issues, and I think that's what Gallagher is doing," Cox said.

Gallagher was not available to comment, but three former SEC general counsels issued a statement supporting the paper, including Harvey Pitt, who served as SEC chair from 2001 to 2003.

The paper, they wrote, "performs a necessary public service by appropriately putting shareholder proponents on notice" about future proposals.

Lucian Bebchuk, the Harvard Law School professor who created the project, did not respond to questions.

The project's website said it has helped move more than 120 big companies toward annual elections. The site says the project finished its work last summer and is not currently operating.

(Reporting by Ross Kerber in Boston; additional reporting by Sarah N. Lynch in Washington; Editing by Richard Valdmanis and David Gregorio)