- The Washington Times - Tuesday, July 15, 2003


Shareholders would be able to nominate company directors under a proposal being considered by the Securities and Exchange Commission, but they first would have to demonstrate that the company had resisted legitimate requests by groups of investors.

The proposed change is not one of “democracy,” but “to give some real power to people who have the right to express their view through a vote,” SEC Chairman William Donaldson said yesterday.

In a meeting with reporters, Mr. Donaldson framed the planned change as a significant step that extends the work of the sweeping corporate-accountability legislation enacted last summer at the height of the business scandals that sapped investor confidence.

Corporate America has seen a trend over the past decade toward “imperial” chief executives and boards of directors that often have acted as rubber stamps to executives’ actions, Mr. Donaldson noted.

“The buck stops with the board,” he said.

For shareholders to get their candidates for the board of directors officially nominated, they would have to meet certain conditions, such as already having faced company resistance when they brought up proposals for changes in corporate policy. In addition, the investors backing a candidate would have to hold a certain percentage of the company’s stock, probably a figure between 3 percent and 10 percent.

And they may be limited to nominating a single candidate.

The idea is not so much to get shareholder-backed candidates on boards as to prod companies to become more responsive to investors, Mr. Donaldson indicated.

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.

Advocates of greater access for shareholders say they now have no effective way to oust a miscreant director other than by withholding approval from an entire slate of candidates put forward by executives.

The SEC will seek public comment on the proposal and plans to issue tentative rules as soon as August and September, probably putting the changes in effect in time for next year’s spring season of voting by company shareholders.

Officials of consumer and investor advocate groups didn’t immediately return telephone calls seeking comment on the SEC staff proposal.

The action comes soon after the five-member SEC moved to force companies to receive approval from shareholders before lavishing stock options on executives and directors, a change long sought by investor advocates pushing reform.

Excessive pay, lucrative stock options and special deals for executives whose companies have failed and laid off employees have eroded investor confidence already shaken by the accounting scandals of the past year or so. Big state, union and professional pension funds have been pressing for changes to give shareholders more say in companies’ decisions on executive pay and other matters.

“This is a positive step towards making boards of directors more accountable to long-term investors,” AFL-CIO labor federation President John Sweeney said yesterday of the new SEC proposal. “The retirement savings of America’s working families have been harmed by the failure of boards of directors to prevent wrongdoing at Enron, WorldCom and other scandal-plagued companies.”

Individual investors also say it’s important for shareholders to have a greater voice. Of about 650 comment letters on the matter already received by the SEC, more than 400 came from average investors.

Business groups have opposed such a change, contending that it would create conflict among directors sitting as a board.

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