Risk & Compliance

SEC Snubs Proxy Access

The 3-1 decision is a bitter pill for shareholder activists who wanted to democratize corporate boardrooms.
Stephen TaubNovember 28, 2007

The Securities and Exchange Commission on Wednesday specifically authorized companies to deny including in proxy statements shareholder resolutions relating to director nominations.

Supporters saw the hotly debated measure, widely known as proxy access, as a way to further democratize corporate boardrooms. Trade groups backed by corporations have vehemently opposed it, asserting that it would let special interests use it to pursue their narrow agendas.

“I am obviously disappointed,” Annette Nazareth, currently the only Democrat on the commission, reportedly said. The decision “stands in the way of shareholders’ rights to elect directors,” she added.

Nazareth was the lone dissenter in the 3-to-1 vote. One of the commission’s Democratic seats is currently vacant.

The SEC considered two competing proposals. The other, supported by Nazareth and many shareholder activists, would have allowed shareholders who own 5 percent of a company to propose changes to bylaws regarding director nominations. Then shareholders would have been able to vote on those proposals, thus allowing them to put their own director candidates on the ballots.

SEC chairman Christopher Cox had gone on record in saying he wanted some sort of policy in place in time for the 2008 proxy season.

The American Federation of State, County and Municipal Employees (AFSCME), which has been a leader in the pro-proxy access movement, reportedly threatened to sue the SEC if the more restrictive rule were adopted.

In response to Wednesday’s vote, Social Investment Forum chairman Tim Smith, who also is senior vice president of Walden Asset Management, and SIF chief executive Lisa Woll said in a joint statement: “We strongly oppose the SEC decision to limit the rights of shareholders to participate in the nomination of directors. We join with those investors who urge the Commission to reconsider immediately this anti-investor decision. Nominating directors for a vote is a basic shareowner right that deserves respect — not intrusive government limits that harm shareholders.”

They asserted that “most U.S. investors, when polled, believe that the SEC should be further opening up corporate boardrooms, rather than shielding them from the scrutiny and feedback legitimately offered by the investors who are stakeholders in these publicly owned companies.”

Several years ago, the SEC proposed a policy that would have permitted shareholders to nominate directors under certain circumstances. But after hosting a roundtable discussion on the issue and reading through mountains of comments, it never formally voted on the issue.