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A Sept. 15 Business article incorrectly said that the Business Roundtable has vowed to sue the Securities and Exchange Commission if the agency moves ahead with a controversial shareholder rights plan. The U.S. Chamber of Commerce has threatened to sue.

SEC Chief Seeks Action On Board Nominations

By Carrie Johnson
Washington Post Staff Writer
Wednesday, September 15, 2004; Page E01

Securities and Exchange Commission Chairman William H. Donaldson said yesterday that he wants to move ahead this year with a plan that would allow dissatisfied shareholders to propose board candidates under limited conditions.

But Donaldson quickly added that a majority of the five-member commission has yet to agree on the terms of the plan, which may prove difficult in a politically charged election year.

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"I personally want to get this done in one way or another," Donaldson told a group of Washington Post editors and reporters. Donaldson said that although he is striving to build a consensus on the issue, he was prepared to move forward without a unanimous vote.

Shareholders have long complained that they have few ways to hold corporate directors accountable. At present, they can either sell their stock or withhold their votes from a candidate -- but they cannot cast a "no" vote.

The SEC has repeatedly explored ways to change the nomination process. The last time amendments were seriously considered, in the 1970s, the agency backed down in the face of intense pressure from the business community.

Executives at the Business Roundtable already have vowed to sue if the SEC moves ahead with changes, and several chief executives have lobbied commissioners to oppose the plan. On the other side are labor-backed pension groups, other shareholder-rights activists and Democratic Commissioner Harvey J. Goldschmid, who is urging the panel to adopt a "strong and effective access rule."

Yesterday Donaldson signaled that he is wary of the impact the failure to act might have on his legacy, citing a 1999 rule proposal that would have exempted brokers from having to register with the agency when they give customers certain kinds of investment advice. The SEC never voted on the plan -- which was opposed by financial planners -- and left the industry dangling for years.

"My own view is, striving to have a unanimous vote on something almost spells going down to the lowest common denominator or not getting anything," Donaldson said.

Donaldson said he supports the broad outlines of a shareholder nomination plan that would be triggered when more than 50 percent of investors withhold their votes from a board candidate. Some agency insiders have suggested that management could be required to propose a new candidate, with input from dissatisfied investors, the following year. Donaldson did not speak in detail yesterday about the outlines of a possible compromise.

Separately, the SEC is considering updates to its rules on how much information companies must disclose about executive pay deals, Donaldson said.

Donaldson said the agency could require that more information be presented to investors about complex items such as long-term compensation packages.

"As far as salaries and compensation are concerned, there remains obfuscation about who's being paid what," he said. "We have to think through what new rules we want to make things more clear than they are now."

Donaldson cited his experience as a corporate director and said he would employ the "bully pulpit" of his office to urge board members to set aside recommendations from high-priced compensation consultants for higher executive compensation and instead focus on new, more practical ways to measure executive performance.

He firmly rejected the idea that the SEC would meddle with individual companies' pay decisions. The agency has been wary of interfering with the market on such issues in the past, most recently refusing to force mutual fund companies to reduce fees in a flurry of settlement deals over improper and abusive trading practices.

Instead, the SEC in June passed a rule that requires fund company boards to disclose the factors they consider when approving fee agreements.


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