SEC moving to make it easier for large shareholders to put directors on boards
Wednesday, October 8th 2003, 12:00 am
News On 6
WASHINGTON (AP) _ Federal regulators are moving to make it easier for major shareholders to install directors on company boards over opposition from corporate CEOs who want to keep the status quo and big pension funds who say it doesn't go far enough.
The far-reaching proposal by the Securities and Exchange Commission is designed to make companies more accountable, prevent boards from acting as rubber stamps to executives' actions and thereby bolster investors' confidence rattled by last year's wave of corporate scandals.
SEC Chairman William Donaldson has endorsed the plan, but his two fellow Republicans have questioned the new rules as currently written.
The commissioners were voting Wednesday to open the proposed rules to public comment.
``It looks like they're trying to thread a pretty fine needle here,'' Barbara Roper, director of investor protection for the Consumer Federation of America, said Tuesday.
The regulators need to devise rules ``that will increase shareholder influence without starting a CEO revolution,'' Roper said. She called the proposal ``probably a step forward.''
Opponents _ including the Business Roundtable, representing chief executives of the biggest corporations _ maintain that the move would bring chaos in the boardroom, give special interests undue influence over company policy and force companies that govern themselves stringently into board takeover contests.
On the other side, managers of the largest U.S. pension funds, which control more than $640 billion in eight states, say the proposal as written heavily favors company management.
``We are troubled that this opportunity for meaningful and lasting reform may be squandered,'' officials of the funds recently told Donaldson in a letter. ``Our understanding of the current proposal is that it is excessively restrictive, going well beyond deterring frivolous nominations and preventing abuse by corporate raiders.''
Under current rules, shareholders are allowed to nominate candidates for director but they cannot put a nominee's name in the company's official ballot materials mailed to investors, known as the proxy. That makes it expensive and difficult to mount a campaign for alternate candidates.
Advocates of greater access for shareholders say they now have no effective way to oust a miscreant director other than by withholding approval for an entire slate of candidates chosen by company executives.
For shareholders to get their candidates for the board of directors officially nominated they would have to meet certain conditions. Among them, for example, would be previous company resistance toward proposals for policy changes. In the first year of a two-year process, there would have to be an event such as a significant percentage of the company's shareholders withholding votes from the board's nominees.
Investors backing a candidate would have to hold a certain percentage of the company's stock, between 3 percent and 5 percent _ a key issue in the debate.
The contested election would occur in the second year. Shareholders would be able to nominate as many as three directors for companies with large boards, and one director for those with smaller boards. The nominated candidates would have to be independent, with no financial ties to the shareholder groups putting them forward.