SEC Chair's Proxy Agenda Draws Debate
Thursday, November 15, 2007
The leader of the Securities and Exchange Commission told lawmakers yesterday that he is poised to move ahead with a controversial shareholders rights proposal, drawing sharp criticism from Democratic lawmakers and officials from unions and pension funds.
Christopher Cox testified at a contentious Senate Banking committee hearing that the SEC needs to vote soon to clear up confusion over proxy rules -- even though one of the two Democrats on the five-member commission has resigned and the other is on her way out the door. Cox, whose tenure has been marked until now by an insistent desire to seek consensus, drew harsh words from critics who want him to slow down and reconsider.
At issue is how much power large investors should have in nominating candidates for corporate boards -- a decades-long debate that Cox said has vexed 22 former agency chairmen since World War II.
In July, Cox voted to seek comment on two conflicting proposals. One would codify the way the SEC has typically done business in a manner that allows companies to exclude investor proposals from proxies sent to a company's shareholders. The second, broader plan would have allowed investors that hold at least 5 percent of a company's stock greater leeway in proposing board candidates in exchange for more disclosure about their operations.
Cox has signaled that he would like to hold a vote as early as this month on the first proposal, saying it would make the current rules clearer in time for the next proxy season. He has said he intends to revisit the issue more broadly in 2008, by which time two Democratic SEC nominees may have won confirmation and would be eligible to participate in a decision.
"I cannot predict exactly what the commission will do on this subject this year," Cox said. "At a minimum, I think we will establish clarity" for companies seeking advice about how to proceed in the near term.
But the two-step scenario enraged critics such as Richard Ferlauto, who bashed Cox for sending mixed messages and for allegedly forsaking investor interests. Ferlauto, director of pension policy at the American Federation of State, County and Municipal Employees, said Cox "has emerged as the anti-shareholder wolf shedding his sheep's clothing."
Officials at major U.S. and international pension funds were more measured in their comments but no less fervent in their belief that the approach was misguided.
"This ill-timed proposal that could be acted upon by a subset of the full commission is unfair, unwise and contrary to the very purpose for which the SEC was established," testified Dennis Johnson, senior portfolio manager at the California Public Employees' Retirement System.
Nine senators including Banking Committee Chairman Christopher J. Dodd (D-Conn.) sent a letter this month imploring Cox to wait. Sen. Jack Reed (D-R.I.) told the SEC chief yesterday that he was "deeply concerned" about the plans and the way they were being handled.
Cox's blueprint garnered support from the Business Roundtable, a group of the nation's top corporate executives, who testified in favor of a short-term fix.
John J. Castellani, the roundtable's president, told Congress yesterday that "the last thing shareholders need is politics in the boardroom, with fractured boards openly arguing."