SEC may relax restrictions on shareholders' talks


WASHINGTON -- During the 1940s, Franco's Spain outlawed political gatherings by more than 10 people.

While Spain eventually ended these restrictions, U.S. proxy rules still require that 10 or more shareholders who plan to discuss corporate voting issues first obtain government approval.

The Securities and Exchange Commission will decide whether to change that Thursday when it meets to consider proposed rule changes that call for greater disclosure on executive compensation and fewer restrictions on communications among shareholders.

Although there's no guarantee that the commission will adopt the rules as proposed, SEC Chairman Richard Breeden has promised that the proxy revisions will be ready for the spring 1993 annual shareholder meetings.

Some industry watchers say the new rules will replace fractious corporate proxy battles with more moderate political techniques, such as lobbying of board members, negotiations and letter-writing among constituents, in this case shareholders.

"You can think of the SEC's old proxy rules as very similar to the kinds of restrictions you get in totalitarian states," said John Pound, a finance professor at Harvard University's Kennedy School of Government. "What these rule changes mean is that shareholders can undertake political activity."

One reason is that the rule changes will make political activity among shareholders less costly and cumbersome.

Shareholders would no longer be compelled to have their written communications approved beforehand by the SEC, and they wouldn't have to notify the SEC at all if they hold oral discussions. And large, long-term investors may also be allowed to voice their opinions on a company's performance in the annual proxy statement.

If the proposed changes are passed, institutional investors will likely submit more suggestions to management, such as recommending possible board members, or take greater liberty in airing their opinions.

"Right now we are very cautious about communicating our intent to vote no [on a company's slate of directors] because it might be construed to be a proxy solicitation," said Kayla Gillan, assistant general counsel for the California Public Employees Retirement System.

Ms. Gillan said the new rules "would really free us up" to use the mass media to advertise the pension fund's views.

Under Section 13(d) of the Williams Act, investors who band together face certain reporting obligations if together they hold 5 percent or more of a company's stock.

The SEC also wants a clearer, more concise presentation of the executive compensation procedure, but some industry groups want such disclosure limited.

The American Compensation Association (ACA), which represents more than 14,000 professionals around the country, said the increased disclosure of executive compensation could cause problems for a company's employees.

For example, an executive whose individual performance was not quite up to par in a particular year would have that fact openly displayed in the annual proxy statement. "If the executive felt he or she had been defamed by the committee, litigation could result," the group said.

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