SEC acts to ease election of directors
5/21/2009WASHINGTON - Federal regulators yesterday proposed making it easier for shareholders to nominate directors for ballots of public companies, a change that could give shareholders more say over compensation packages for executives and risk controls.
The U.S. Securities and Exchange Commission, split 3-2 along party lines, voted to open the proposal to public comment. The plan would allow groups who own a certain percentage of a company's stock to put their nominees for director on the annual proxy ballot that is sent to all company shareholders. The change has been pushed by investors and governance advocates.
The proposal would require different minimum levels of stock ownership according to the size of the company: 1 percent for the 700 biggest companies, and 3 or 5 percent for smaller ones. The shareholders would need to have held the stock for at least a year.
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.
The crisis gripping the U.S. and global economies "has led many to raise serious questions and concerns about the accountability and responsiveness of some companies and boards of directors to the interests of shareholders," SEC Chairman Mary Schapiro said. "The time has come to resolve this debate."
Ms. Schapiro has said the proxy access issue will be one of the most contentious addressed by the agency, and there was impassioned debate among the commissioners yesterday.
Commissioner Kathleen Casey, a Republican who voted against a similar proposal in 2007, said the proposal would impose a "federal proxy regime" on state laws and represents "paternalism," with the SEC substituting its judgment for that of shareholders. The plan could suppress innovation and growth at companies outside the financial industry that played no role in the economic crisis, she said.
But Democratic Commissioner Luis Aguilar said, "Now is the time, with the country demanding renewed accountability," for shareholder access to proxy ballots to be enhanced.
Governance advocates and big investors such as pension funds bitterly have protested the SEC's action in November, 2007, on a 3-1 party-line vote, that allowed companies to deny disgruntled shareholders access to annual proxy ballots - making it more difficult and expensive for dissident blocs to elect their candidates to a company's board.
"This is a great day for shareowners," Ann Yerger, executive director of the Council of Institutional Investors, said.