SEC developing proxy access plans: sources

WASHINGTON (Reuters) - U.S. securities regulators are reopening the thorny issue of giving shareholders an easier way to nominate company board members, at the direction of the new head of the Securities and Exchange Commission.

SEC Chairman Mary Schapiro has asked agency staff to start drafting "proxy access" proposals, two sources familiar with the matter said on Friday.

Because the corporate proxy document is tightly controlled by management, shareholders currently can put forth their own director nominations only after waging a costly proxy battle.

Giving shareholders an another way to influence the composition of the board has long been sought by governance activists and large pension funds such as Calpers, the $162.2 billion California Public Employees' Retirement System.

Most companies are against making it easier for shareholders to influence the composition of the board, arguing it could give too much influence to single-issue activists.

The SEC has struggled with the issue for decades.

In 2007, the SEC mulled giving shareholders a way to nominate corporate directors if they owned at least 5 percent of a company's stock and if other conditions were met. But the measure never made it to a vote.

Christopher Cox, the SEC's Republican chairman at the time, said that letting companies continue to exclude shareholder nominations was the only proposal that could get the needed votes. However, Cox said he would revisit the issue. He never did, leaving office in January.

Schapiro, picked to head the SEC by Democratic President Barack Obama, has quickly taken steps to reinvigorate the investor protection agency, embarrassed most recently by its failure to spot the alleged $50 billion fraud of Bernard Madoff.

She favors giving shareholders a greater say on who serves on corporate boards.

"There are about 40 of the largest markets outside of the United States that allow investors or shareholders of some size and of some duration access to the proxy," Schapiro said at her nomination hearing in January. "I think it's time for the United States to step into that club."

The sources familiar with her thinking say Schapiro is open to a so-called tiered approach on proxy access that would be linked to a company's market value.

A tiered approach would set a lower shareholder ownership threshold for large companies like Exxon Mobil (XOM.N), which has a current market capitalization of about $316 billion, and a higher one for companies with a smaller capitalization.

Exxon's market capitalization reflects its current share price of $64.03 and its 4.9 billion outstanding shares of common stock. If a shareholder was required to hold 5 percent of Exxon's outstanding stock to nominate a director, the shareholder would need approximately 247 million shares worth about $15.8 billion.

But a 5 percent threshold might be too low for a company with a more modest market capitalization such as Office Depot (ODP.N), which is trading around 68 cents. In theory, a shareholder could easily amass a 5 percent stake in such a company and potentially exert undue influence on the board.

A tiered-approach is also favored by Democratic SEC Commissioner Luis Aguilar. Both Aguilar and fellow Democratic commissioner Elisse Walter object to setting a rigid 5 percent ownership threshold, saying it would be too high for shareholders in large companies.

The sources cautioned that the SEC staff's work on proxy proposals is in the early stages and no one route has solidified as yet. It is not clear when Schapiro will move on the proposals.

Business groups such as the U.S. Chamber of Commerce have long objected to proxy access.

"To start injecting special interests into the corporate dynamic, that is not the proper place," said Tom Quaadman, an executive director with the Chamber.