The SEC Takes a Step Backward for Corporate Accountability

[Omaha Steve]

Imagine when you went to the polls to vote you were provided an official government-issued ballot that listed only one name for each open position. When you complain there is not much point in voting, a government representative tells you that you are welcome to print up and distribute your own ballots with different names for each position. It is clear that under these circumstances, elections almost always would be a mere rubber stamping of the slate of candidates that a self-perpetuating ruling class has selected. Necessary, healthy change would happen only against the greatest odds.

This is the situation that has prevailed with respect to the election of the boards of directors at our public companies. And just when things were about to change for the better the U.S. Securities and Exchange Commission (SEC)—whose mission it is to be the “investor’s advocate”—decided to stand in the way of this change. On Nov. 28, the SEC voted to deny investors the right to field their own board candidates on company ballots to replace incompetent directors nominated by company management. Annette Nazareth, the sole Democrat on the commission, voted against the rule, saying that it “stands in the way of shareholders’ rights to elect the directors of companies they own.”

The AFL-CIO and other investors were swift in their condemnation of the new rule. AFL-CIO President John Sweeney said in a statement:

This rule comes at a time when the need for strong, independent corporate directors and a vigilant SEC is more critical than ever. The SEC should be responding by moving aggressively to protect investors, rather than taking away our rights.

Fred Buenrostro, chief executive of the California Public Employees’ Retirement System, said in a statement the SEC

has turned back the clock on corporate democracy by withdrawing a shareowner right that is taken for granted in other countries.

The AFSCME Employees Pension Plan, New Jersey Division of Investment and the North Carolina treasurer promptly announced they had filed binding bylaw amendments seeking to nominate directors at Bear Stearns and JP Morgan Chase and would take the issue to court if the companies sought the SEC’s approval to exclude those proposals from their ballots.

The issue arose after the 2nd U.S. Circuit Court of Appeals last year struck down the SEC’s stance allowing companies exclude “proxy access” proposals, reasoning that the securities regulator had contradicted its own interpretation of the rules earlier permitting such proposals. The AFSCME pension fund brought the original case.