December 23, 2003

Lurching Forward with Corporate Control Reform

The pendulum swings a little bit back toward shareholders:

FT.com Home US: US regulators have received a record number of comments on controversial proposals that would allow shareholders more easily to oust board directors, with the vast majority of responses in favour of changes that are set to revolutionise company annual meetings. Corporate America's leaders remain implacably opposed to the plans, however, and stepped up their opposition ahead of Monday's deadline for comments to be submitted to the Securities and Exchange Commission. Some 12,000 letters have been posted on the SEC's since the regulator issued its plans two months ago. The previous record was 7,000 letters regarding plans to force institutional investors to disclose how they voted at shareholder meetings.

However, about 9,500 of those in favour of the latest plans are on two "form letters" - indicating grassroots campaigns organised by large, unidentified, lobby organisations. The business community is sharply divided on the proposals which seek to reform access to company election materials, known as proxies. In general, the plans would give groups of shareholders more opportunity to contest director elections and nominations after certain "trigger" events at companies have taken place. The triggers could be a small group of shareholders garnering a majority vote at an annual meeting in favour of opening up board elections, or gaining that right automatically if a board has ignored shareholder wishes in the past.

Public pension funds, unions and a number of individual investors seem broadly in favour of the ideas, but business leaders have told the SEC they are against. The SEC commissioners themselves are divided and are unlikely to produce final plans for several weeks. On Monday the Business Roundtable, an association of chief executives, said the proposed rules "exceed the commission's authority, would initiate sweeping and harmful changes in corporate governance and fail to achieve the commission's objective of improving the proxy process at unresponsive companies".

Separately James McNerney, chairman and chief executive of 3M, wrote to the SEC recently: "The SEC's proposals are terrible public policy because they risk impairing the continued functioning of effective boards while failing to improve the operation of deficient boards." However, Christianna Wood, an investment officer at the huge Calpers retirement fund in California, wrote that the plans were "perhaps the most important rule the SEC has put forth for the investing public in decades". This month a coalition of influential investors said it planned to use the new shareholder powers, if they are passed, in an effort to oust board members of Marsh & McLennan, the parent company of Putnam Investments. Putnam is one of the mutual fund groups at the heart of the scandal over controversial trading practices.

Posted by DeLong at December 23, 2003 07:08 AM | TrackBack

Comments

I find it strange that there is not much interest in this topic.

I checked Friends of the Earth web site. I thought they'd have something, some reaction to this development, I thought so because they got a whole big folder on shareholder activism, but they don't have any thing on the reform either.

http://www.foe.org/international/shareholder/


Posted by: Bulent Sayin on December 23, 2003 12:08 PM

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I particularly like this quote:
"On Monday the Business Roundtable, an association of chief executives, said the proposed rules "exceed the commission's authority, would initiate sweeping and harmful changes in corporate governance and fail to achieve the commission's objective of improving the proxy process at unresponsive companies". "

The proxy process is one of the most useless things there is. Supposedly shareholders use the vote to control the corporation. What a laugh. The rights of shareholders have been gutted by Delaware's frantic race to the bottom of corporate governance. What the roundtable means is that they bought Delaware fair and square, and now someone is trying to change the rules.

Posted by: Masaccio on December 23, 2003 02:19 PM

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