Stockholder Democracy -- It's About Time

There's never been any doubt about the clubbiness that exists in the boardrooms of US corporations. As they say, change is long overdue. Maybe we're about to see it happen, and if we do, every company and the economy will benefit.

SEC moves toward making proxy ballot access easier

Regulators moving to make it easier for shareholders to get nominees on company ballot

Wednesday August 25, 2010

WASHINGTON (AP) -- Federal regulators are moving toward making it easier for shareholders to nominate directors of public companies, a change sought by investor advocates that is already sparking protest from the nation's biggest business lobby.

The action expected from the Securities and Exchange Commission on Wednesday will allow groups that own at least 3 percent of a company's stock to put their nominees for board seats on the annual proxy ballot sent to all shareholders.

SEC Chairman Mary Schapiro says the change is "a matter of fairness and accountability."

But the U.S. Chamber of Commerce's president called it "a giant step backwards for average investors" and said the organization will fight it "using every method available."

WASHINGTON (AP) -- Federal regulators are moving to make it easier for shareholders to nominate directors of public companies, a major change long sought by investor advocates and buttressed by the new financial overhaul law.

The action by the Securities and Exchange Commission will allow groups that own at least 3 percent of a company's stock to put their nominees for director on the annual proxy ballot sent to all shareholders. Getting their candidates on the board gives them a better shot at influencing company policy. It likely will be in place in time for next spring's corporate elections season -- and observers say it may be used to target boards of some companies.

The five-member SEC was expected to adopt the change at a meeting Wednesday.

With more than 600 billion shares being voted each year, the proxy system is a key element of corporate governance. Under the current system, dissident investors must wage costly proxy fights and appeal to shareholders at their own expense if they seek new directors on a company's board or a bylaw change.

Business interests, such as the U.S. Chamber of Commerce, have bitterly opposed changing the proxy rules. And the SEC itself was split 3-2 along party lines when it voted in May 2009 to open the proposal to public comment. SEC Chairman Mary Schapiro has said it was one of the most contentious issues addressed by the agency.

The change comes at a time when investors, hurt by the financial crisis and recession, are angry about risky behavior by corporations looking for short-term profit gains and extravagant compensation packages for executives.

"This is groundbreaking," said Amy Borrus, deputy director of the Council of Institutional Investors, a group representing public pension funds. "Proxy access will make boards more responsive to shareowners, and more careful about how they oversee their companies and management in particular."

The new rules are likely to be used "only in egregious cases where boards have ignored shareowners' concerns," Borrus said. Yet the fact that the tool is there could make directors more responsive, she added.

But Bob Profusek, an attorney who heads firm Jones Day's mergers and acquisitions practice, said the question is "whether this is going to stimulate an even more short-term orientation in the boardroom."

"Are shareholders really the right stewards for making decisions about corporate America in a general way?" he asked. Shareholders like Warren Buffett and big mutual funds do advocate for companies' long-term benefit, Profusek suggested, but it's easy for hedge funds and other "renters" to accumulate a 3 percent position in a smaller company and then clamor for short-term interests.

Under the new rules, the shareholders would need to have held the minimum level of stock for at least three years.

Critics of the changes have said they would impose a "federal proxy regime" on state laws and that the SEC lacked the legal authority to make them. That authority came in the landmark financial overhaul legislation that was signed into law last month.

Also under the new law, shareholders will be able to weigh in on pay packages for top executives. Nonbinding votes on executive pay will be held at least once every three years.

Until now, the SEC hadn't made a thorough review of the proxy system in 30 years. In that time, there have been numerous changes in technology, shareholder demographics and the structure of share holdings.