SEC Approves Rule That May Make It Easier to Remove Directors

by Joshua Gallu and Jesse Westbrook for Bloomberg, August 25th, 2010.

U.S. regulators will let investors owning 3 percent of a company nominate directors on corporate ballots, a step that may help shareholders oust board members accused of overpaying executives and failing to boost shares.

The Securities and Exchange Commission voted 3-2 today to allow investor board candidates on the proxy statements sent to stockholders before director elections. Investors or groups that meet the ownership threshold for three years will be eligible to offer nominees.

The SEC acted in response to investor complaints that company-selected directors failed to rein in compensation and financial-industry risk-taking that led to more than $1.79 trillion of writedowns during the credit crisis. Business groups including the U.S. Chamber of Commerce have fought the change, arguing that labor unions and pension funds will use the threat of proxy fights to seek concessions that would harm companies.

“These rules reflect compromise and weighing competing interests,” SEC Chairman Mary Schapiro said before the vote. “As with all compromises, they do not reflect all the views of any one person or group. They are, I firmly believe, rational, balanced and necessary to enhance investor confidence in the integrity of our system of corporate governance.”

The SEC has considered permitting so-called proxy access since 2003, only to back away because of opposition from corporations and concern that the agency would lose a lawsuit. (continue reading… )

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