A Democratic member of the Securities and Exchange Commission yesterday decried the agency's failure to give more power to dissatisfied shareholders, saying that a lack of action has "made it a safer world for a small minority of lazy, inefficient, grossly overpaid, and wrongheaded CEOs."
Commissioner Harvey J. Goldschmid bemoaned the apparent stalemate on a plan that would give unhappy investors more power to nominate corporate board members. Goldschmid added that, in his view, "the worst instincts of the CEO community have triumphed."
A copy of his remarks to an Investor Responsibility Research Center meeting on corporate governance was provided to reporters. Goldschmid spoke in New York, on the one-year anniversary of the proposal's introduction.
The original SEC proposal would have let unhappy shareholders nominate a board candidate if in the previous election 35 percent of the votes were withheld from any company-proposed candidate.
The plan drew fierce opposition from the Business Roundtable and the U.S. Chamber of Commerce, which has threatened to sue the agency if it adopts the reforms. Prominent members of the Bush administration, including Treasury Secretary John W. Snow, also have expressed their displeasure to SEC officials.
SEC Chairman William H. Donaldson told The Washington Post last month that he hopes this year to reach a workable compromise that would win a majority of votes from the five-member commission.
"I personally want to get this done in one way or another," Donaldson said.
One possible compromise currently under discussion at the SEC would urge management to consult with dissatisfied investor groups about new board candidates if enough shareholders withheld votes from board candidates. But Donaldson has not scheduled a vote on the issue, and critics worry that it may be too late for the proposal to have an impact on the 2005 proxy season.
Goldschmid told the New York audience yesterday that he remains "cautiously optimistic" that the commission can reach an agreement that would maintain the "integrity" of the original plan.
Shareholder rights advocates have called reform of the director-nomination process the single most effective way to eliminate the clubby atmosphere that pervades many corporate boards. Boards of directors at Enron Corp., WorldCom Inc., and HealthSouth Corp., where huge problems were uncovered, came under fire for insufficiently challenging management and failing to root out accounting manipulation that cost investors billions of dollars.
Patrick S. McGurn, senior vice president at Rockville's Institutional Shareholder Services, said companies responded aggressively this year to investor criticisms, in part because of the pending SEC proposal.
"Without the likelihood of adoption of a ballot-access rule, a lot of investors fear the business community may go back to business as usual in 2005," McGurn said.