U.S. SEC mulls 5 pct ownership for proxy access
Reuters
By Rachelle Younglai
WASHINGTON, July 10 (Reuters) - U.S. market regulators are considering allowing shareholders who own at least 5 percent of a company's stock to nominate directors in proxy statements, one source familiar with an internal agency document said on Tuesday.
The U.S. Securities and Exchange Commission is under the gun to propose new proxy access rules in time for 2008 annual shareholder meetings and agency Chairman Christopher Cox has promised to roll out the first draft by the end of July.
But there are crucial variables around any proxy access proposal. They include how many shares must be owned and for how long before a shareholder can nominate a director.
The proposal that the SEC commissioners are considering is best characterized as a "working memo," according to the source, who spoke on condition of anonymity.
It would require a shareholder to own 5 percent of a company's stock to amend bylaws that would enable the shareholder to file a change to a company's proxy. The memo also outlined a "no-hold" period, meaning that a shareholder who wanted to put forward a proxy proposal could do so immediately after buying the shares, rather than having to hold shares for any specific length of time.
An SEC spokesman declined to comment.
Proxy statements have historically been tightly controlled by corporate managers. They are mailed annually to shareholders, telling them about nominations for director seats, executive pay levels and resolutions subject to shareholder votes.
"Not only is 5 percent unworkable, it would be a field day for hedge funds or anyone to come in," said Rich Ferlauto, a director with the American Federation of State, County and Municipal Employees. "It would be taking a good principle to give shareholders long term access and turning it on its head."
Institutional investors would oppose a 5 percent ownership threshold, Ferlauto said, and called it an "irresponsible" move that would pander to hedge funds.
A court decision last year forced the SEC to reconsider its rules. The agency for years routinely allowed companies to exclude certain shareholder proposals from proxy statement ballots, but a federal judge ruled that shareholders should be able to consider proposals to help them put their own candidates on corporate boards.
The SEC has been largely silent since the court ruling, which allowed shareholders this year to put forth proxy access proposals at two companies, Hewlett-Packard Co and UnitedHealth Group Inc.
Both proposals failed to win a majority but garnered applause from AFSCME, which had successfully filed a lawsuit over the SEC's decision to deny the labor group access to U.S. insurer AIG's proxy.
Corporate groups oppose giving so-called special interest groups such as labor unions more access to annual proxy statements.
"It's clear that there isn't an easy compromise. I don't see anything we could support that organized labor could also support," said David Hirschmann, senior vice president of the U.S. Chamber of Commerce.
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