Securities and Exchange Commission staffers are exploring a compromise that could help break a months-long impasse over a controversial plan that would give dissatisfied shareholders more power to nominate board candidates.
In the past week, officials in the agency's Division of Corporation Finance have met individually with SEC commissioners to discuss the shareholder access plan and other issues. The staffers are seeking to craft language that would iron out differences among the five commissioners and eventually secure at least the three votes needed to approve the plan, which backers call the most important initiative on the agency's agenda.
Sources familiar with the process cautioned that it could yet stall in this politically charged election year. Previous efforts to change the way board members are nominated have foundered because of massive corporate lobbying efforts. The sources spoke on the condition of anonymity because internal SEC discussions are still in an early stage.
Since it was proposed last year, the idea has come under increasing fire from prominent members of the Bush administration, the Business Roundtable and the U.S. Chamber of Commerce, which has threatened to sue if a plan is approved. Business groups warn that it would give too much control to labor groups and large institutional investors, which they say might "hijack" the boardroom.
But advocates, including state retirement funds and pension groups, said even a modest change in the way directors are nominated could alter the clubby atmosphere in corporate boardrooms. Directors at companies proved unwilling to challenge corporate management at Enron Corp. and WorldCom Inc., and at other scandal-ridden companies.
The original proposal would have allowed shareholders to nominate candidates for corporate boards if at least 35 percent of shareholders withheld their votes from a sitting director at the previous election. One alternative that has been proposed would allow the board's other members to nominate an alternative candidate. But that move drew swift opposition from the agency's two Democrats, who argued that it merely preserved the status quo and did not put enough power in the hands of dissatisfied investors.
SEC staffers now are exploring language that would require sitting directors and shareholders to agree on a new board candidate if enough investors withheld their votes from an incumbent.
It is unclear how many votes such a change might win, since compromise has been difficult to broker and certain commissioners have signed on to specific aspects of the original proposal while rejecting other parts.
SEC Chairman William H. Donaldson has publicly decried pressure from partisans on both sides of the shareholder debate and has said he will not be rushed or put on an "artificial timetable."
SEC spokesman Matthew Well said, "The staff is continuing to work through the issues."