WASHINGTON General Electric Co (GE.N) will allow shareholders to nominate their own corporate directors, becoming one of the few companies to adopt proxy access reforms in a move that could pave the way for others.
The company said the new bylaws, which went into effect Feb. 6, will allow a single shareholder or a group of up to 20 shareholders who own more than 3 percent of the company's stock for at least three years to nominate up to 20 percent of the board's directors.
GE's move, disclosed in a filing with the U.S. Securities and Exchange Commission on Wednesday, comes at a time when regulators at the SEC are starting to more closely scrutinize proxy reforms in general.
“GE just taught corporate America a lesson in what a responsive board looks like," said New York City Comptroller Scott M. Stringer, who oversees the city's pension funds and has filed dozens of shareholder proposals at other companies to permit proxy access.
"Voluntarily implementing proxy access is a sign that the push for a significant voice in the boardroom is breaking through," he added.
Several years ago, the SEC under then-chair Mary Schapiro adopted rules requiring public companies to let shareholders nominate directors to corporate boards if certain thresholds were met. Schapiro is now on the board of GE.
The U.S. Chamber of Commerce and the Business Roundtable, which represent companies' interests on Capitol Hill, successfully challenged the rules in court, citing concerns that such rules could advance the agendas of activist investors, who buy stakes in companies and lobby for management and other changes.
In an emailed statement, GE said it has "always emphasized shareowner accountability, and proxy access is another tool to provide that accountability."
Currently, shareholders must file resolutions on a company by company basis requesting changes in the bylaws to create a process for them to nominate directors, unless companies like GE decide to make the change voluntarily.
Next week, the SEC is slated to hold a roundtable to explore ways to improve the proxy voting process. Last month, the agency caused a bit of a stir in the corporate world when it abruptly announced it would not weigh in on a dispute between Whole Foods (WFM.O) and shareholder James McRitchie over two competing proposals that would let shareholders nominate directors. [ID: nL1N0UW011]
Under SEC rules, companies can exclude shareholder proposals if they are deemed too similar to the ones put forth by management. The SEC is now re-evaluating this rule.
The U.S. Chamber of Commerce estimates that only a handful of companies have adopted proxy access. Many companies have actively sought to beat back such efforts.
“GE is a longtime leader in corporate governance, and the fact that their board has taken this step will raise interest in dealing with this issue proactively at other boards," said John Olson, an attorney for Gibson, Dunn & Crutcher.
According to Thomson Reuters data, the shareholders who own more than three percent of GE shares are the Vanguard Group, State Street Global Advisors (STT.N), and the BlackRock Institutional Trust (BLK.N).
Tom Quaadman, a vice president at the Chamber's Center for Capital Market Competitiveness, said GE's actions reflect the proper approach companies should take when weighing this issue.
"It should be up to companies and shareholders to decide," he said.
(Reporting by Sarah N. Lynch; additional reporting by Lewis Krauskopf in New York; Editing by Meredith Mazzilli and Bernard Orr)