Corporate Governance

The Era of Shareholder Democracy?

By Tamar Weinrib

On May 20 the SEC will meet to propose historic new rules to give long-term shareholders greater access to the director nomination process.  Part of the discussion will revolve around what criteria must be met before a shareholder is given access to management proxy statements.  For example, the minimum required stake an investor must have before having the power to nominate a board member may shift depending on the size of the company.  Efforts to allow shareholders proxy access have failed in the past because of opposition from companies as well as the Bush administration.  In addition, previous attempts to allow proxy access prompted attack from investor advocates who objected to the highly rigorous ownership and disclosure standards.   Ultimately the SEC had opted to bar investors from filing access proposals.  On May 20 that may all change.  However, even now, the expectation that the SEC will consider implementing this new rule has elicited outrage from the president and chief executive officer of the U.S. Chamber of Commerce, who has asserted that director elections and shareholder rights are matters of state law and the U.S. Supreme Court has ruled accordingly. 

Though it may prove exceedingly difficult for the SEC to adopt a rule that will please all, in an economic climate where investors feel that they have very little control, a rule allowing certain shareholders to nominate board members that will appear on management proxy statements may provide a much needed boost to investor confidence and will hold boards of directors accountable to long term investors.

Full post as published by PomTalk on May 18, 2009 (boomark / email).