Key Democratic lawmakers are urging the Securities and Exchange Commission to adopt a controversial rule that would help dissatisfied investors more easily nominate board members at public companies.
Citing financial scandals at Enron Corp., WorldCom Inc. and HealthSouth Corp., the legislators recently told SEC Chairman William H. Donaldson there is "no better time" to "bring democracy to the boardroom." Their letter was dated June 24 but it was not released publicly until yesterday.
The issue of shareholders' access to the ballot is the most intensely fought item on the SEC's agenda this year. The Business Roundtable and the U.S. Chamber of Commerce oppose changes to the way board members are selected, arguing that special interests could "hijack" the process. But shareholder rights groups, including labor-backed pension funds, are pushing for an alternative to the expensive and often futile proxy battles that investors currently must mount to bring change to corporate boardrooms.
The last time the SEC considered altering board election rules, in 1977, lobbyists scuttled the proposal. In a recent speech, Donaldson decried the increasingly "shrill" election-year rhetoric and said he would not rush ahead under an "artificial" timeline.
Still, Donaldson is laboring under heightened pressure from both sides to broker a compromise to the original plan, which would permit shareholders to nominate board candidates the following year if shareholders withhold 35 percent of votes from a sitting director or a group of directors.
Instead, Donaldson is now looking at a plan that would give current board members the right to choose alternative candidates if investors withheld 50 percent of their votes from one or more candidates. The two Democrats on the SEC oppose such a compromise, reasoning that it will do little to ensure that shareholder interests are represented in boardrooms.
Lawmakers led by Rep. John D. Dingell (D-Mich.), the ranking minority member of the House Energy and Commerce Committee, and Rep. Barney Frank (D-Mass.), the ranking minority member on the House Financial Services Committee, late last week asked Donaldson to continue with the process "without including additional provisions that may compromise the effectiveness of the rule."
SEC spokesman Matthew C. Well said the agency "will carefully consider the views put forth in submissions and letters such as this one from members of Congress."