WASHINGTON, March 20 (Reuters) - A U.S. Senate panel is looking at whether shareholders should have more clout in choosing corporate directors and is planning a hearing on the matter in mid-2007, a staff member told Reuters on Tuesday.
In another sign that Democrats in Congress are willing to explore corporate governance issues, Rhode Island Democrat Jack Reed’s subcommittee on securities, insurance and investment is examining a long-standing goal of investor rights advocates known as “proxy access.”
“We are taking a look at it and will be talking to interested parties. The subcommittee will probably hold a hearing on this matter and other investor issues at some point this summer,” a Reed aide, Chip Unruh, said in an interview.
Investor activists for years have tried to win for shareholders the right to place their own board nominees’ names in proxy statements sent annually to investors by companies.
But corporate managers hold tight control over what goes into proxy statements, the pamphlets mailed annually to shareholders telling them about nominations for director seats, executive pay levels and other corporate information.
Management’s control over the proxy has allowed executives to exclude from it items such as proposals for changing how directors are chosen and the names of director nominees put forward by investors themselves instead of managers.
Questions arose in September about shareholder rights in this area, however, when the U.S. 2nd Circuit Court of Appeals overturned 16 years of Securities and Exchange Commission practice in which corporations had routinely been allowed to exclude certain shareholder proposals from proxies.
The appeals court that covers New York, Connecticut and Vermont ruled that companies may not exclude a narrowly defined type of proposal -- one to let shareholders consider ways to give themselves more say in how directors are chosen.
The ruling came in a case involving the American Federation of State, County and Municipal Employees (AFSCME), a labor union, and U.S. insurer American International Group AIG.N.
The 2nd Circuit’s decision stirred confusion in the corporate governance world. The SEC has not responded to the decision, reflecting internal agency disagreement over it.
Investor activists see the court ruling as an opportunity to resurrect efforts to give shareholders more proxy access, an issue last debated in 2003-2004.
Under former SEC Chairman William Donaldson, agency staff put forward a proposal to boost investors’ boardroom power in 2003. The measure was attacked by corporate interests and died.
The Reed subcommittee is part of the Senate Banking Committee, which oversees the SEC.
In the House of Representatives, the Financial Services Committee will consider a bill on Wednesday that would give shareholders an annual, non-binding vote on executive pay levels as reported in the proxy statement.
Rep. Barney Frank, the Massachusetts Democrat who chairs the House panel, said on Monday that if his “say on pay” bill becomes law, but is widely ignored by board compensation committees, he would expect Congress to look into proxy access as the next step in addressing shareholder rights.
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