Shareholder-access plan stirs objections

SEC meets tomorrow to debate rule proposal

October 07, 2003|By Andrew Countryman | Andrew Countryman,CHICAGO TRIBUNE

Federal regulators are poised to offer much-anticipated rules on shareholder-nominated candidates for corporate boards, but some investors say they fear the plan could impose too many impediments.

The Securities and Exchange Commission is scheduled to meet tomorrow to debate a formal rule proposal to give shareholders access, in certain cases, to company proxy materials so they can put forward candidates to challenge management nominees for the board of directors.

The SEC has debated several times over the years a way to modify the usual system of mere shareholder ratification of management candidates, but this is the furthest it has advanced.

Chairman William H. Donaldson and other commissioners have signaled support for a system to allow limited access, despite strenuous objections from corporate America. But major institutional investors have expressed concern that the rule proposal won't go far enough.

Central to the debate are "triggers" that would have to occur before investors could list candidates in the proxy.

Possible triggers, such as a high enough percentage of withheld votes for directors or a board failing to adopt successful shareholder resolutions, were a key element of SEC staff recommendations issued in July.

Many companies oppose shareholder nominations, saying they damage board effectiveness and preclude screening of directors' qualifications.

But if a system were to be adopted, many business leaders say, triggers would be an important protection to prevent frivolous candidates and takeover attempts by corporate raiders.

Officials at the influential Business Roundtable group of chief executives have backed triggers, but want them to be significant, and urged the SEC to study the issue further.

"We are concerned that some of the triggering events in the `staff' report will result in the application of shareholder access to most, if not all, companies," Pfizer Inc. CEO and Business Roundtable official Henry McKinnell wrote last week in a letter to the SEC.

Triggers, and standards for minimum shareholdings to nominate candidates, also are a key issue for big institutional investors.

They, too, support minimum standards for nominations, but last week a group of state pension fund officials objected to elements they had been told would be in the proposal.

"If the set of rules are weighed down with a long list of restrictions, it will turn our voice into nothing more than ... an occasional whimper," said Sean Harrigan, president of the giant California Public Employees' Retirement System, or Calpers.

The officials, including several state treasurers, said they understood nominations would have to come from individual shareholders owning at least 1 percent of a company.

They complained that even Calpers, with $145 billion in assets, rarely, if ever, could meet that threshold.

McKinnell, meanwhile, suggested a 25 percent threshold "in order to justify the cost and substantial disruption" from contested elections.

Institutional investors also objected to any provision that would require candidates to be completely independent from the shareholders nominating them.

The Chicago Tribune is a Tribune Publishing newspaper.

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