Battling for the Boardroom

The SEC's split decision over proxy access puts chairman Christopher Cox in the hot seat.

The debate over so-called
proxy access is intensifying as
shareholder activists and pension
funds push for the right to nominate
directors even as business
lobbyists counter that granting
that right could create boards
that are beholden to special-interest groups.

The tension was obvious during a July Securities and
Exchange Commission meeting that ended with the commissioners
voting to put forth two different rules for public comment.
It was the first time since Christopher Cox became
chairman that the commissioners have been divided. Members
of the Senate Committee on Banking, Housing, and
Finance later criticized the SEC for releasing what Sen. Jack
Reed (D–R.I.) called “diametrically opposed” proposals.

The commission’s two Republican members, together
with Cox, voted to propose a rule that essentially restates
the SEC’s existing position, which is that companies may
exclude any shareholder proposals
pertaining to director nominations.

In an unusual move, Cox
also voted with the two Democrats
on the commission to put forth a
new rule that would allow shareholders
or groups of shareholders
who have held more than 5 percent
of a company’s stock for a
year to recommend changes to
company bylaws allowing shareholders
to nominate director candidates.

Shareholder activists may not cheer, however. Many
say a 5 percent stake in a large public company could be a prohibitively
high threshold. Still, says Stanley Keller, a partner
with Edwards Angell Palmer & Dodge, “my guess is people
will be happy to have that, as opposed to no access. If there’s
enough dissatisfaction, I think there are enough blocks of
stock that could [collectively] reach the 5 percent threshold.”
Cox wants a rule in place in time for the 2008 proxy season
and cited that timetable as the reason for releasing two
divergent proposals. With the commission divided, his vote is
likely to determine which rule will win.

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