Shareholder Proposal Is Stalled at SEC
Election-year pressures have become the latest obstacle to a bitterly fought proposal that would give shareholders a greater voice in selecting corporate board members.
The plan, which has angered major business groups and polarized the Securities and Exchange Commission, is now given little chance of approval until after the presidential election.
Even after that, its fate remains unclear.
On Friday, the pent-up tensions came to the fore. Democratic Commissioner Harvey J. Goldschmid, a leading advocate of the stalled proposal, lashed out at unnamed corporate executives who he said were blocking approval.
“With deepest regret, I must tell you that the commission still hesitates to move ahead and finalize our proxy access proposal,” Goldschmid told an audience of investor activists in New York.
In unusually sharp language, he continued: “The commission’s inaction to this point has made it a safer world for a small minority of lazy, inefficient, grossly overpaid and wrongheaded CEOs. So far, in my view, the worst instincts of the CEO community have triumphed.”
The measure has sparked strong emotions since its unveiling in 2003. Business leaders, a core constituency and traditional source of election money for Republicans, argue that the measure would allow narrow interests to politicize business decisions and paralyze the boardroom.
The Business Roundtable also contends that recently enacted regulatory changes designed to improve the way companies are governed and communicate with shareholders should be given time to work before new measures are imposed.
“These changes are significant and meaningful,” said Tita Freeman, the group’s communications director.
SEC Chairman William H. Donaldson has championed the goal of giving large, longtime shareholders a limited say in picking nominees for corporate boards.
But the commission is sharply divided over several issues, including the options a company should have if a majority of shareholders oppose a board candidate.
“We now run the risk” that no plan will be in place in time to affect next year’s corporate elections, Goldschmid said.
For the immediate future, the Nov. 2 presidential election is expected to keep matters on hold.
“I don’t think that a major proposal that’s been hanging fire for the last 10 months would be likely to be brought out right before the election,” said John Coffee, a professor of law at Columbia University.
The impasse centers on a provision to allow shareholders to challenge a company’s nominee for its board of directors if 50% of them withheld votes from the company’s choice.
Critics say the proposal is too severe, and want it amended to allow corporate boards to come up with an alternate nominee if their first choice is challenged. That compromise, in turn, has been derided as “substituting Bozo B for Bozo A.”
The SEC’s Democrats -- Goldschmid and Roel C. Campos -- favor a strong plan for shareholder access, while Republicans Paul S. Atkins and Cynthia A. Glassman are more wary.
Donaldson occupies the pivotal spot.
A longtime Republican and Bush family friend, Donaldson has at times seemed to be closer to the SEC’s two Democrats than his two Republican colleagues.
As recently as Sept. 27, he expressed his ongoing support for the goal of giving investors a bigger say in the board nomination process.
“The goal is simple: to provide long-term shareholders with an effective means, under certain circumstances, of adding shareholder nominees to a management-proposed slate,” he told the Financial Services Leadership Forum in New York.
Democratic presidential candidate John F. Kerry also supports the concept of greater shareholder access to the corporate ballot.
If he were to prevail on Nov. 2, the prospect of a Democratic majority on the SEC would strengthen those who seek a far-reaching rule.
If Bush wins, in a sense the initiative stays with Donaldson. Meanwhile, retirement rumors are swirling around the chairman, who is 73 and presumably conscious of the imprint he wishes to leave on his agency and the reputation he will leave behind.
“The question is whether he would want to do something that ensures his legacy as a strong, active SEC chairman or take his tent and walk off quietly into the night,” Coffee said. “My belief is that he would -- like a lot of other SEC chairmen -- be trying to establish his legacy.”
