SEC to keep mum on HP election fight
The Securities and Exchange Commission Monday said it would not intervene in a dispute over board election rules at Hewlett-Packard Co. and signaled that a clear policy governing director nomination contests probably would not be implemented until the 2008 season of corporate meetings.
The announcement underscored the difficulties faced by the SEC and its chairman, Christopher Cox, in achieving consensus on a plan to give shareholders a greater voice in the corporate election process.
Regulators have been struggling to offer guidance to companies and investors since a federal appeals court ruling in September found that SEC staff decisions on the matter have been inconsistent.
“The SEC action today reflects how difficult this is for the commission, how divisive this is,” said Amy Borrus, deputy director of the Council of Institutional Investors. “But we’re pleased that the commission continues to refrain from acting in a way that would take rights away from shareowners. Ultimately, the SEC will have to get off the fence.”
In the short term, the SEC decision to steer clear of the Hewlett-Packard conflict means the Palo Alto-based technology firm might face a greater risk of being sued if it excludes from its annual meeting in March the election resolution submitted by a group of large public pension funds.
The measure would change the company’s election rules so that investors who own 3% or more of the stock for at least two years would be able to place nominees on the company’s official election materials.
The proposal follows disclosures last year that HP hired private investigators to spy on reporters and its own directors to find the source of a leak to the media.
HP had asked the SEC to let it keep the election measure off its 2007 corporate ballot, but on Monday the SEC said its staff would keep quiet on the matter.
Having been denied explicit permission to exclude the measure, HP officials run the risk of drawing a legal challenge if they do so.
“We’re prepared to litigate,” said Richard Ferlauto, director of pension and benefit policy for the American Federation of State, County and Municipal Employees, one of the groups pushing the proposal.
The SEC decision, he maintained, amounted to a “green light” for shareholder election proposals.
HP had no comment Monday on the SEC decision, said Ryan J. Donovan, a company spokesman. The company’s shares rose 2 cents to $42.02.
“The ball is in HP’s court now,” Borrus said. “The company will have to think long and hard about its next step. Any move to try to boot out the shareowner access proposal would likely be litigated in court.” Shareholder activists, including many pension funds, have long sought greater influence in the director nomination process, which is largely controlled by management and the board.
Big-business lobbies have opposed the effort to loosen up elections, saying that such a step could empower special interests whose agenda is more narrow than that of ordinary shareholders.
Monday’s announcement was just the latest development in what has been a long-lasting headache for the SEC. In 2003, Cox’s predecessor as SEC chairman, William H. Donaldson, unveiled a plan that would have given large blocs of shareholders some powers to nominate candidates for the board.
But after fierce resistance from lobbies such as the Business Roundtable and the U.S. Chamber of Commerce, the plan withered.
The issue came back to life after the U.S. 2nd Circuit Court of Appeals ruled in September that the SEC was wrong to have allowed American International Group Inc. to exclude an election resolution submitted by the AFSCME Pension Fund. Since that decision, SEC officials have been trying to agree on a consistent national policy for corporate elections recognized by all the courts and not just the 2nd Circuit in the Northeast.
After the September ruling, the U.S. Chamber of Commerce described AFSCME’s push as “an attempted end run” around the SEC and said the subject of shareholder voting rights was “one of the most contentious issues in the area of corporate governance.”
Reflecting the strong opinions on the issue of shareholder voting rights, the SEC has been unable to resolve the matter.
On Monday, Cox described the HP situation as “an unsettled legal question.” In the coming months, he said, the SEC would consider the legal issues surrounding the matter, aiming for “one clear rule to protect investors’ interests in all jurisdictions during the next proxy season.”
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