SEC Delays Decision On Board Nominations

Securities regulators said yesterday that they once again would delay taking action on the thorny issue of whether shareholders can nominate corporate board members, the third such deferral since a federal appeals court weighed in last year.

The issue has become one of the biggest battles between corporate managers and large investment pools controlled by state pension officials and labor interests. Critics say that opening up the nomination process is a way to break the clubby boardroom atmosphere that helped financial scandals flourish undetected in the 1990s.

In September, the U.S. Court of Appeals for the 2nd Circuit in New York disagreed with previous Securities and Exchange Commission staff interpretations on the nominations process. But the agency has yet to issue clear guidance since that case, which involved a challenge by the American Federation of State, County and Municipal Employees to practices at insurance giant AIG.

As lobbying intensified on both sides of the debate, two other companies, Reliant Energy and UnitedHealth Group, have sought to bar investor groups from including such proposals in their proxy forms, asserting that they are not bound by the New York appeals court decision because their operations are based elsewhere.

Yesterday, the SEC essentially declined to take a position on that argument in response to a request by Hewlett-Packard. The computer maker had sought to exclude from its proxy statement a request by AFSCME and other groups that would allow large investors that have held HP stock for two years to propose candidates for the company's board. HP spokesman Ryan Donovan declined to comment.

SEC officials also announced that they would not address the issue, as they were expected to, in a public meeting Jan. 31. Instead, given the limited number of such requests that have arrived in recent weeks, regulators will take more time to develop a response, agency Chairman Christopher Cox said in a telephone interview. Cox added that using technology to disseminate proxy statements and proposals could reduce costs for companies and investors and help the agency craft a solution to the long-running debate.

"We remain committed to producing a rule proposal, but we will take advantage of the additional time," Cox said. "Our objective is to have a rule in place for the next proxy season."

Patrick McGurn, special counsel to Institutional Shareholder Services, a Rockville proxy advisory firm, said the move was not unexpected. "The fact that they haven't addressed this so far means there's no consensus within the commission," he said. "This is probably the politically expedient thing for the commission at this time."