WASHINGTON - U.S. securities regulators moved to change how companies elect board members and govern themselves, tilting the corporate playing field toward investors who have complained of weak boards and lavish pay for top executives.
The Securities and Exchange Commission yesterday proposed requiring companies to tell shareholders more about pay policies, board members' qualifications, and why they chose a certain leadership structure.
The SEC also voted, 3-2, to adopt a long-standing proposal that would bar broker-dealers from voting for corporate directors on behalf of their clients unless told to do so.
"The most fundamental way in which shareholders can ensure that directors remain accountable to them is through the director election process," SEC Chairman Mary Schapiro said.
The action drew immediate praise from the Council of Institu-tional Investors and the country's largest labor federation, the AFL-CIO.
Investor activists long have complained that brokers who hold voting rights of their clients' shares typically vote with management's wishes, tipping the scales in contested director elections.
"Counting uninstructed broker votes is akin to stuffing the ballot box for management, as broker votes almost always are cast in favor of management's candidates for board seats," said Ann Yerger, executive director of the institutional investor group, whose members hold more than $3 trillion in assets.
The new SEC rule, which takes effect in 2010, may give activists the edge to oust board members.
Both Republican commissioners on the SEC opposed the change. One, Kathleen Casey, was concerned retail investors would be disenfranchised over institutional investors.
The biggest U.S. business lobby, the U.S. Chamber of Commerce, agreed, saying the new rule dramatically shifted more voting power from individual shareholders to activist investors.
As mandated by Congress, the SEC voted to give shareholders an advisory vote on executive pay at more than 500 firms that received taxpayer funds from the government's Troubled Asset Relief Program.
The SEC separately proposed a package of measures requiring companies to tell shareholders more about pay policies and board members' qualifications, responding to concerns that lax corporate oversight has let top executives take excessive risks to reap compensation rewards.
Under the proposal, companies must discuss and analyze pay policies for all employees, not just top executives, if risks from compensation policies could have a material effect on the company.
Another measure would require companies to disclose fees paid to compensation consultants when they help determine how much an executive or director should be paid.
The SEC proposed requiring companies to include the estimated value for stock options granted during the year in the "summary compensation table" for top executives published annually by companies. The table now includes the value of option grants that became vested, or eligible to be exercised, during the year. The proposals are subject to a 60-day public comment period. It was unclear how soon the SEC may act to modify or finalize them.
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