On Wednesday, the SEC voted in favor of allowing shareholders proxy access. According to the SEC press release, shareholders will now be able to nominate candidates for their company's board of directors and have those nominations included in the proxy materials. There are two hurdles to be cleared however, shares must have been held for 3 years and shareholders, or groups of shareholders, must own 3 percent of the company's voting stock.
The 3 percent ownership requirement will be a challenge in large cap companies, says Moxyvote.com co-founder, Mark Schlegel.
Shareholders will be able to band together to reach the 3 percent ownership threshold, however, even with that boost, reaching 3 percent ownership in companies with a market capitalization of over $10 billion will be difficult.
"I think they were trying to walk a fine line in being progressive in shareholder rights as well as taking into account the arguments from management groups, the Chamber of Commerce being one of them, which are heavily against this. I think that's where the 3 percent number came out," he says.
A story in the Wall Street Journal on Thursday, "Investors Gain New Clout" reported that not everyone is in favor of the new rule, with a clear split down party lines in the SEC vote and public criticism from one of the Republican commissioners at the SEC, Kathleen Casey.
According to the WSJ story, Casey warned of "'significant harm to our economy.'"
Shareholder advocates, on the other hand, have lobbied for years in favor of proxy access for shareholders.
In a press release Wednesday, advocacy and educational group, ShareOwners.org, praised the SEC and said, "Had this right existed prior to the current financial crisis, it might have put irresponsible boards under greater shareowner pressure to act less recklessly."
"You only have to look now to the BP oil spill, it was not just an environmental issue. Millions of shareholders of BP lost billions of dollars of value on their stock because the directors weren't minding the store," he says.
Not to mention some of the players in the financial crisis, Lehman Brothers, Bear Stearns, et al.
They were "all public companies where undue risk was taken for short-term gains by the management of the companies. And directors weren't asking the questions; analyzing what they should be angling and doing their job -- which by the way they're getting paid handsomely to do," says Schlegel.
Given that corporate governance issues affect shareholders, the country and the rest of the planet, shouldn't shareholders have the right to nominate watchdogs to the board on their behalf? What do you think?
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