US Securities and Exchange Commission restricts shareholder proxy access

The US Securities and Exchange Commission (SEC) voted on Wednesday 28 November to let companies exclude shareholder proposals for director nominations from corporate ballots. It promised to reopen the issue at a later date.

The 3-1 vote was in line with the agency’s interpretation of its proxy access rules, which had been put in doubt by a 2006 federal appeals court decision. Threats of legislation and further litigation aimed at giving shareholders more say in nominating company directors followed the decision.

SEC Chairman Christopher Cox said the agency vote would create legal certainty for the company meeting season next spring. But he acknowledged that investor advocacy groups and others pushing for greater proxy access would be disappointed.

Despite pleas from investor advocate groups and Democratic lawmakers to delay taking any action, Cox pressed ahead with his plan to have a clear rule in place before the next round of annual shareholder meetings.

Moreover, the SEC commissioners did not vote on a second proxy access proposal that would have given shareholders a way to nominate corporate directors if they owned at least 5 per cent of a company''s stock.

Cox said letting companies continue to exclude shareholder nominations, the way the proxy rule had been applied for 17 years, was the only proposal that could get the needed votes. The new rule takes effect in 30 days and affects shareholder proposals submitted from Wednesday 28 November.

The agency is operating with four commissioners instead of five, and Cox has had to provide the swing vote that allowed both proposals to be issued for public comment. Annette Nazareth, the only Democrat on the panel, cast the dissenting vote on Wednesday.

Senate Banking Committee Chairman Christopher Dodd of Connecticut, a Democratic White House hopeful, said he would examine whether it was possible to bring legislation to reverse the decision.

Proxy access has long divided investors and business groups. The commission said it received 34,000 comment letters on the issue. Investors say it is their fundamental right as shareholders to be able to nominate board directors.

Companies, which have kept tight control of what is included in proxy documents sent to shareholders ahead of annual meetings, say the access issue is about unions and special interests trying to gain leverage.