UPDATE 2-Small firms may get break in SEC proxy rule-source

Tue Aug 24, 2010 1:18pm EDT

Related Topics

* SEC meets Wednesday to vote on proxy access rule

* Small firms may get three-year delay in compliance (Adds lawmaker letter, byline)

By Rachelle Younglai

WASHINGTON, Aug 24 (Reuters) - U.S. securities regulators are considering giving small companies a reprieve from plans to make corporate boards more accountable to shareholders, a person familiar with the Securities and Exchange Commission's thinking said on Tuesday.

The SEC is hashing out a rule to give long-term shareholders the ability to place a board nominee on the company's proxy statement.

Giving shareholders access to the corporate proxy, or the ability to nominate board directors, has long been sought by big activist shareholders who want more say on how their companies are run.

The business community opposes so-called proxy access for fear that boards will be taken over by special interest groups that do not have the company's best interests in mind.

According to the plan under consideration, shareholders would have to hold at least 3 percent of the company's stock for a minimum period of three years in order to nominate a director, the source said.

Small companies could be given a three-year delay to comply with the so-called "proxy access" rule, said the source.

The source requested anonymity because the plan is not final and could change before the SEC meets on Wednesday to decide whether to adopt it.

Over the past decade, two other SEC chairmen have tried to adopt proxy access rules with no success. This time, the SEC has backing from the Dodd-Frank financial regulation bill, which affirms the agency's authority to adopt proxy access rules.

The legislation will help protect the SEC from some lawsuits. In the past, the business community has threatened to sue the SEC, saying the agency does not have the power to adopt the rule.

Regardless, lawmakers mounted a last-ditch effort to thwart the SEC's plans and reminded commissioners that the Dodd-Frank bill does not mandate the SEC to pass a rule.

"At a time when capital formation and job creation are in jeopardy, the commission should be particularly careful not to impose unnecessary requirements on public companies," said 10 lawmakers in a letter to the SEC commissioners.

The letter, dated Aug. 9, was signed by senators including Richard Shelby the top Republican on the Senate Banking Committee, which oversees the SEC.

(Reporting by Rachelle Younglai; editing by John Wallace, Dave Zimmerman)

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