Risk & Compliance

Donaldson Rails at Proxy Critics

Proposed SEC rules on ''proxy access'' generated the most comment letters ever received by the commission.
Stephen Taub and Joseph McCaffertyJune 22, 2004

William Donaldson, chairman of the Securities and Exchange Commission, lashed out at critics of the SEC’s proposed rules that would open up the proxy process.

In a speech over the weekend to a meeting of corporate directors at Stanford University, Donaldson decried the “escalating, shrill, and fearful rhetoric” that has invaded the debate over this issue, according to the Washington Post, which obtained a copy of the remarks.

Proxy access, as the proposed rules are commonly called, is one of the most controversial recommendations to emerge from the commission in years. The initial proposal, which calls for a two-step process that could allow large shareholders and shareholder groups to propose their own candidates to a company’s board of directors, generated more than 14,500 comment letters — the most ever received by the SEC.

At a corporate-governance conference in April, former SEC chairman Harvey Pitt called the plan “silly and dangerous in the extreme.” And Stephen Bollenbach, CEO of Hilton Hotels, calls it “scary,” because it will politicize the boardroom and subject corporate strategy to small shareholders with specific agendas.

The proposed rules are also vehemently opposed by the Business Roundtable as well as the U.S. Chamber of Commerce, which has threatened to sue if the SEC approves the proposal. The final rules had been expected by now, but according to published reports they have support from only three of the five commissioners, including Donaldson. The SEC, it is said, prefers to line up at least four commissioners before it tries to implement new rules.

In his speech, Donaldson stated the critics of the proposal have “gone well beyond the bounds of thoughtful and sensible comment,” according to the Post. “Let’s not mock those who struggle to find this middle ground,” he reportedly added. “And let’s not proclaim the end of American competitiveness if any such middle ground were found.”

Shareholder advocates say the Bush Administration is pressuring the SEC to water down the initial draft. “If the SEC effectively guts the proposal,” says Patrick McGurn, senior vice president of Institutional Shareholder Services, “we’ll go back to the status quo, where shareholders are expected to be seen, not heard.”