The Securities and Exchange Commission announced on December 14 that it is re-opening the comment period on its proposal to allow shareholders to nominate directors to corporate boards. The SEC intends to make its final recommendations early this year.
Under the proposal, companies would be required to include in their proxy statements information on proposed shareholder nominees and to include names on the proxy card. Nominating shareholders would need a minimum ownership percentage of 1-3 percent for large accelerated filers and 5 percent for all others. Those shareholders would need to provide notice to the SEC of their intent to include a nominee.
The proposal, available here, has garnered a lot of comment, particularly concerns that haste in implementation for the 2010 season could lead to unanticipated problems. This influx of comments has slowed the review process by SEC Chairman Mary Schapiro and stalled a judgment. On the negative side, filers are claiming cost and disruption to the company, including the possibility that planned changes could aid in bids for change in control and violate independence requirements without proper restrictions in place. Proponents claim that the changes will enhance shareholder rights and increase director accountability.
Greater involvement by shareholders in the nomination process could certainly change who sits in the board room and the perspective that they have on compensation policy. Controversy about the relationships between management and board members and how this could impact objectivity and decision making is a topic that has been hotly debated for decades. Some studies hypothesize that having directors on the board where the CEO has not been responsible for the nomination result in lower compensation. A compelling correlation though has not been made considering all of the other factors that come into play including board size, whether there is a separate chair, level of independence, stock ownership, and tenure.
It will be interesting to see what if any modifications are made before a ruling is made on this item, what impact these changes may have on who is nominated in the coming years and how these new directors may change compensation policy. Regardless, at this point we can rest assured that changes will not be in place in time for the 2010 proxy season.
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