- The Washington Times - Wednesday, October 8, 2003


Federal regulators moved yesterday to make it easier for major shareholders to install directors on company boards over opposition from corporate CEOs — an effort to make companies more accountable.

The Securities and Exchange Commission, tentatively adopting the far-reaching proposal at an open meeting, recognized the opposition of chief executive officers who want to keep the status quo and big pension funds that say the plan doesn’t go far enough.

The commissioners voted 5-0 to open the proposed rules to public comment for 60 days. If they are finally adopted, contested board elections could not take place under them until the spring of 2005.

The proposal was crafted to avoid the election of “special-interest” directors beholden to the shareholder groups that nominated them, by requiring evidence of significant investor dissatisfaction with the company and nominated directors’ independence from the groups, said Alan Beller, director of the SEC’s corporation finance division.

There “should not be single-issue or special-interest directors,” Mr. Beller said before the vote.

The proposal was designed to make companies more answerable for their actions and to prevent corporate boards from functioning as rubber stamps for executives’ action — the sort of pliancy that occurred at Enron and other disgraced companies. The goal is to bolster investor confidence rattled by last year’s wave of corporate scandals.

SEC Chairman William Donaldson has endorsed the plan. But his two fellow Republican commissioners, Paul Atkins and Cynthia Glassman, questioned the new rules as currently written.

“Even though our intentions are good, … the consequences of being wrong could be very serious,” Miss Glassman said at the meeting.

The rules would bring a dramatic new obligation for American companies coming atop the sweeping set of new regulations under the antifraud legislation enacted last year at the height of the scandals, she said.

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.

Henry McKinnell, chairman and CEO of Pfizer Inc. and Business Roundtable co-chairman, said yesterday the SEC plan “will not enhance corporate governance. Instead, the proposals present the possibility of special-interest groups hijacking the director election process.”

But some think it doesn’t go far enough.

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 Mr. 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 alternative 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.

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