WASHINGTON -- Companies will continue to have broad authority to block investors from playing a bigger role in electing members of corporate boards, federal regulators ruled yesterday.
The 3-1 vote by the Securities and Exchange Commission drew rebukes from investor activists, who say average shareholders are virtually powerless to deal with board members who aren't looking out for their interests.
"Responsible management need not fear its shareholders," said Commissioner Anne L. Nazareth, who cast the lone dissent. "I am obviously disappointed."
SEC Chairman Christopher Cox defended the vote, which he said upholds a long-standing policy in which companies have the right to block placement of shareholder election resolutions on their corporate ballots.
Cox said he remains committed to establishing new rules that would give shareholders a greater voice in corporate elections. Yesterday's vote was required, he said, because of a 2006 appellate ruling that could lead to inconsistent standards for board elections in different parts of the country and jeopardize certain investor protections.
"Today is not the end, and I hope all stakeholders will continue to work with us," Cox said. He added later that he expected to "move forward and reopen this discussion in 2008."
Shareholders typically have little ability to influence the director nomination process other than to mount maverick, out-of-pocket campaigns.
Opponents of expanding such rights, including access to corporate proxy election materials, contend that groups with narrow agendas could end up with undue influence. They say that other reforms, such as the increasing number of independent directors, make the election proposals unnecessary.
But advocates maintain that such powers would help ensure that directors stay accountable to shareholders and perform their role as watchdogs, rather than fall under the sway of high-powered chief executives.
The issue has sparked a barrage of more than 34,000 letters to the SEC, officials said yesterday.
Shortly after the vote, officials at the American Federation of State, County and Municipal Employees said they were filing election resolutions for 2008 at Bear Stearns Cos. and JPMorgan Chase & Co., claiming they had mismanaged mortgage-related matters.
Richard C. Ferlauto, director of corporate governance and pension investment at AFSCME, said the union's pension fund and allies also planned to file further resolutions, and that they would press them in the courts if necessary.
Jonathan Peterson writes for the Los Angeles Times.