Federal and state policy makers are advancing plans to give shareholders more power in corporate boardrooms, according to the Wall Street Journal.
The Securities and Exchange Commission, Congress, and legislators in Delaware are working on measure that would give shareholders more clout in the boardroom.
These steps could bring about the most significant corporate governance changes since the 2002 Sarbanes-Oxley law passed after the blunders of Enron and WorldCom.
The SEC is working on a series of proposals that would make it easier for shareholders to nominate directors. Congress has set its sights on executive say on pay and Delaware legislators are moving to amend the state’s corporate law to gear more power toward shareholders.
“Those two changes are an extremely big shift,” said Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance. “It changes the balance in the election process.”
David T. Hirschman, a policy executive at the U.S. Chamber of Commerce, the nation’s largest business lobby, told WSJ that proxy access could hurt companies. “The system is designed for shareholders to entrust the board to do the job right,” he said. “Anything that makes it harder for that to happen is a step backward.”
The SEC could propose a proxy-access rule by mid-May. It’s weighing three options, one that would allow certain shareholders to directly nominate directors on corporate ballots; allow those shareholders to submit proposals that if approved, would allow them to nominate directors; and it could also propose a combination of the two alternatives.
On Capitol Hill, House Financial Services Chairman Barney Frank is planning to introduce a bill that would give shareholders a nonbinding vote on say on pay. A new law requires say on pay at financial institutions that receive government aid.
Richard Ferlauto, director of corporate governance and pension investment at the American Federation of State, County, Municipal Employees, told WSJ that discussions on Capitol Hill about pay caps and bonuses “wouldn’t be on the table now” if boards better controlled compensation. “The boards brought this on themselves,” he added.
Edward J. Durkin, a governance official at the United Brotherhood of Carpenters, said say on pay will distract from “thoughtful investigative work on comp plans.”