Financial Regulatory Forum

US SEC won’t finalize proxy access for board nominations until early 2010

By Reuters Staff
October 2, 2009

Mary Schapiro, chairman of the Securities and Exchange Commission (file photo) WASHINGTON, Oct 2 (Reuters) – Finalizing a controversial proposal to give U.S. investors a cheaper and easier way to nominate corporate directors is taking longer than expected and securities regulators will not vote on it until early in 2010.

“It is my hope to finalize the rules early in the new year,” SEC Chairman Mary Schapiro said in a statement on Friday.

The SEC had widely been expected to move forward with its so-called proxy access proposal this year. But the agency needs more time to craft a regulation that will not be knocked down by a federal court, according to one source familiar with the SEC’s thinking. The source requested anonymity because he was not authorized to speak on behalf of the SEC.

In May, a divided SEC proposed rules aimed at giving shareholders an easier way to influence the selection of directors. Currently, shareholders can nominate their own slate of directors but only through expensive proxy fights.

Corporate executives now tightly control the annual proxy statement sent to shareholders before the annual meeting and they fear easier access could give special interest groups too much influence. Business groups are expected to challenge the SEC in federal court if the regulator adopts such a rule.

Nevertheless, Schapiro said on Friday: “I am committed to bringing final rules before the commission regarding the ability of shareholders to nominate directors.”

“We have received hundreds of comments that we are reviewing to ensure our rules are fair and appropriate,” she said.

The SEC proposal would give investors owning as little as 1 percent of a large company’s shares the ability to nominate directors. A larger ownership stake would be required for smaller companies under the plan, which was backed by Schapiro and the agency’s two Democratic commissioners and opposed by the two Republican commissioners.

The proposal would effectively overturn a 2007 SEC decision made under the leadership of then-Chairman Christopher Cox allowing companies to exclude shareholder proposals for director nominations from corporate ballots.

Cox acted after a federal appeals court in September 2006 overturned the SEC’s long-standing practice in which corporations had routinely been allowed to exclude certain shareholder proposals from proxies. The ruling from the U.S. 2nd Circuit Court of Appeals triggered confusion in the corporate governance world.

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