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(Adds investor, commissioner comment, details on contested elections)
WASHINGTON, July 1 (Reuters) - U.S. securities regulators narrowly adopted a rule on Wednesday that would bar broker-dealers from voting for corporate directors on behalf of their clients unless told to do so.
The Securities and Exchange Commission voted 3-2 on a nearly three-year-old proposal by the New York Stock Exchange with the two Republican commissioners dissenting.
The SEC's action drew immediate praise from the Council of Institutional Investors and the largest U.S. labor federation, the AFL-CIO.
"Counting uninstructed broker votes is akin to stuffing the ballot box for management as broker votes almost always are cast in favor of management's candidates for board seats," said Ann Yerger, executive director with the council, whose members hold more than $3 trillion in assets.
Activist investors have long complained that brokers typically vote in accordance with management's wishes and can tip the scales in contested director balloting.
Last year, investors contended that if broker votes were excluded, two directors at since-failed Washington Mutual would have failed to win a majority at the thrift's annual meeting.
Kathleen Casey, one of the SEC commissioners who voted against the rule, said she was concerned that it would undermine retail investors in favor of institutional investors. (Reporting by Rachelle Younglai and Martha Graybow, Editing by Tim Dobbyn)