A federal appeals court ruling has essentially thrown the issue of whether shareholders should be able to nominate candidates in corporate board elections back to the Securities and Exchange Commission. A SEC has scheduled an Oct. 18 hearing on the issue, and Chairman Christopher Cox has said he wants the matter resolved before 2007 corporate meetings begin taking place. The Sept. 5 court ruling said that SEC staff improperly allowed American International Group Inc. to block a measure that would have made it easier for investors to nominate their own candidates for the board.
Former SEC Chairman William Donaldson had tried to establish a way for shareholder contingents to place director nominees directly on corporate ballot cards. But his plan was scrapped after two commissioners on the five-person SEC panel and business organizations loudly objected, arguing that the process could give small interest groups undue influence over companies.
But more than two years after Donaldson first kicked the idea around, the SEC panel has a considerably different look. Donaldson has been replaced by Cox, a former Republican congressman, and a Republican opponent of the Donaldson plan, Cynthia Glassman, has been replaced by Kathleen Casey, a former congressional staffer. Neither has vocalized their thoughts on the issue. The commission has a number of options, it could officially endorse the approach of its staff, which has been to allow companies to deny shareholders access to corporate election ballots, or it could allow its staff discretion to grant shareholder access to ballots on a case-by-case basis.
Investors are allowed to nominate board members now, but they must shoulder the costs of postage and election materials -- large expenses that serve to discourage challenges.
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