SEC Moves Closer to Insisting on 1-Share, 1-Vote

The Securities and Exchange Commission, grumbling about “adolescent” behavior by the major stock exchanges, moved Thursday to guarantee American shareholders that they will not lose their voice in corporate affairs.

The commission voted 4 to 1 to issue a tentative regulation that would virtually bar public trading in U.S. corporations that disenfranchise their shareholders or substantially reduce stockholder authority in management affairs.

The regulation is subject to public comment through mid-July and will be the subject of a public hearing, tentatively scheduled for July 22.

But barring the unexpected, the rule could be the subject of a final vote by the commission shortly after Labor Day, said Richard Ketchum, the SEC’s director of market regulation.

The SEC’s vote came a week after talks collapsed among the New York Stock Exchange, the American Stock Exchange and the National Assn. of Securities Dealers on a consensus rule to replace the current “one-share, one-vote” NYSE standard.

The commission earlier had postponed any formal action on the issue, saying it would prefer that the markets work out the matter themselves and that progress was being made. Commissioners also expressed concern about the government being seen as interfering with internal corporate affairs.

But the SEC quickly rescheduled the matter when the exchanges reached an impasse, and the commissioner who offered the proposed rule indicated that he was fed up.

“We are giving a signal . . . of our willingness to do that job if the major markets are either so adolescent or unresponsive or self-destructive or perhaps defensive of their past role as to refuse to do their own job or fulfill their own highest responsibilities,” said commissioner Edward H. Fleischman, who authored the proposal. The commission’s action confronts a recent phenomenon: the desire of some corporations to disenfranchise their stockholders as a defense against hostile takeovers.

By persuading shareholders to surrender their voting rights, perhaps by paying an extra dividend, corporate managers believe they can remove the possibility that a raider will buy enough voting shares to stage a takeover.

But critics contend that this approach turns the concept of ownership upside down. Shareholders, not managers, are the ones that are supposed to own a company, they note.

The issue came to a head when the Big Board asked the SEC for permission to drop its 60-year-old rule requiring listed companies to grant shareholder voting rights. The NYSE said it feared companies would defect to rival exchanges that do not have such a requirement.

The SEC instead deferred action on the NYSE request and approved its own voting rights rule.