Corporate ballot proposals ripped

WASHINGTON — Shareholder activists Thursday blasted proposals by the Securities and Exchange Commission affecting investor rights in corporate elections, suggesting the agency’s approach would not resolve a long-smoldering dispute.

“I think this is a case where more work needs to be done,” Rep. Barney Frank (D-Mass.), chairman of the House Committee on Financial Services, said after a hearing on the matter.

One of the SEC proposals would give corporations broad authority to block shareholders from putting their own director nominees on official company election materials. Another would sanction such powers, but only by groups representing 5% of a company’s stock ownership.

The first approach “would obliterate the ability of shareholders to make resolutions” and the other would be “unworkable,” said Ann Yerger, executive director of the Council of Institutional Investors.

“Even the 10 largest public pension funds combined would be unlikely to meet this threshold at a public company of any size, whether it be a large-, mid- or small-cap company,” said Yerger, whose council represents pension plans with more than $3 trillion in combined assets.

Investors currently can nominate their own candidates for board seats but must pay for their own mailings and materials. Such expenses discourage independent challenges, say critics who contend that contested elections of directors can enhance the quality of board debates. But opponents say that making it easier for maverick candidates to appear on company ballots would give undue power to special interests and hurt shareholders.

“Simply put, proxy access is a bad idea whose time has passed,” said John J. Castellani, president of the Business Roundtable, which represents large companies.

The SEC has been trying for years to bridge the divide on the issue, and Chairman Christopher Cox has said he wanted to have new rules in place for next year’s corporate annual meetings. Changes should be “cautious and measured,” Cox said when the SEC put forth its proposals in July.

A public comment period on the SEC will end next week, and the agency’s staff is expected to review the input for at least a month before making recommendations to the commission.

Beyond the details of board elections, the SEC’s initiative, announced in July, has prompted questions about whether the commission would grant companies broader authority to bar shareholder resolutions on such issues as global warming. Such resolutions are often taken up in annual meetings, although companies may ask the SEC staff for permission to keep them out.

The SEC is seeking public comment on a provision that would grant companies broad authority to block all such advisory resolutions offered by shareholders. Regulators also are considering ways to sanction online communications as a way for shareholders to submit nonbinding resolutions.

As a result, some investors fear that online chat rooms could take the place of shareholder resolutions at annual meetings.

“We’d be thrilled to have a discussion -- say on executive pay -- online,” said Timothy Smith, senior vice president of Walden Asset Management and a longtime investor activist. But he said there would be “across-the-board opposition by investors” if the SEC sought to use such forums to replace shareholder resolutions.

At one point in the hearing, Democratic lawmakers pressed Castellani of the Business Roundtable on the meaning of “special interests,” a term often applied pejoratively to shareholder activists in this debate.

Frank wanted to know whether shareholder resolutions about corporate involvement in Darfur or Iran were “in the special-interest category.”

“Not if it were determined to be in the best interest of all shareholders,” Castellani said.

The answer didn’t satisfy Frank: “You’re just dodging the question.”

At that point, Smith offered a general assertion: “The business community too easily falls into, ‘I don’t like that point you’re raising. You’re a special interest group.’ ”

jonathan.peterson @latimes.com

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Bloomberg News was used in compiling this report.