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SEC Wants to Give Dissident Shareholders More of a Voice

By Kevin Fayle on May 20, 2009 4:35 PM

The SEC is starting to sound like it doesn't have much faith that shareholders will hold boards of directors accountable for their failings under the current system.

On Wednesday, the agency opened a proposal to public comment that would allow shareholders who own a certain percentage of a company's stock to place their nominees for the board on the annual proxy ballot that goes out to all the company's shareholders.

This could give small blocs of shareholders more of a say on issues like executive compensation and the levels of risky behavior that companies engage in.
Currently, dissident shareholders have to wage a proxy fight at their own expense if they want to challenge a company's board members or bylaws.

The AP reports that "[t]he proposal would require different minimum levels of stock ownership according to the size of the company: 1 percent for the 700 biggest companies, and 3 or 5 percent for smaller ones. The shareholders would need to have held the stock for at least a year."

The current global economic meltdown "has led many to question whether boards of directors are truly being held accountable for the decisions that they make," according to SEC Chairman Mary Schapiro. "The time has come to resolve this debate."

The vote to advance the proposal was split 3-2 along party lines, with Republican commissioners claiming that the federal government should not impose its "paternalist" will onto state laws, and should keep those laws in effect instead of creating a new "federal proxy regime," as Commissioner Kathleen Casey labeled it.

The SEC has previously denied giving dissident shareholders the right to put their candidates on the annual proxy ballot, and Schapiro admits that shareholder access is a hot-button issue, so there's no telling whether or not the SEC will end up adopting the proposal as a formal rule.

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