Risk & Compliance

Democratic Reps. Weigh In on Proxy Rules

SEC chairman Donaldson is trying to broker a deal among his own people.
Stephen TaubJune 30, 2004

Six key Democratic members of Congress called for the Securities and Exchange Commission to issue new rules that would provide large investors more access to the process of nominating a board of directors.

The representatives see such a measure as a deterrent to scandal. “Adoption of this rule would prove to be a powerful tool in preventing corporate fraud, as well as restoring beleaguered investor confidence,” said the letter to SEC Chairman William Donaldson, which was released by Michigan’s John Dingell, according to Reuters.

In the fall, the SEC proposed a number of Proxy Access rules. The proposed rules wound up generating a record number of responses, encouraging the commission to hold a rare roundtable discussion among key industry leaders.

Although the commission was expected to trot out its final proposals in May, the SEC itself is now divided over the proposal, according to Reuters, which reported that Donaldson trying to negotiate a compromise. The original proposal, the representatives said, “is balanced, providing a mechanism to bring democracy to the boardroom while enabling companies to operate efficiently,” according to the news service.

The rules as originally proposed would still be fairly restrictive. They would require a two-step process that would take two years before certain large shareholders could nominate their own candidate to a company’s board.

At the same time, the proposed rules would enable shareholders to use official company ballots to nominate their own candidates for the board, Reuters noted. Although shareholders can propose nominees now, their candidate are usually omitted from the ballots mailed to investors.

There is no indication that the SEC is ready to act soon, according to press reports. The Business Roundtable and the U.S. Chamber of Commerce have been aggressively lobbying against the proposed rules, arguing that special interests would wind up with too much power in the boardroom.

Besides Dingell, the letter was co-signed by Massachusetts’ Barney Frank and Edward Markey, New York’s Carolyn Maloney, Colorado’s Diana DeGette and Maine’s Tom Allen.

SEC spokesman Matthew Well said the agency “will carefully consider the views put forth in submissions and letters such as this one from members of Congress,” according to reports.