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WSJ article on shareholder nominated directors

SEC May Give Investors
More Nominating Power

Agency to Recommend Shareholders
Be Given More Board-Election Rights
By DEBORAH SOLOMON
Staff Reporter of THE WALL STREET JOURNAL


WASHINGTON -- The Securities and Exchange Commission staff plans to
recommend that the agency move to give shareholders more power in nominating
and electing corporate directors, according to people familiar with the
matter.

In a report to be delivered to the SEC next week, the staff plans to
recommend that companies be required to lift some of the obstacles that
prevent shareholders from nominating and electing directors. While details
still are being hammered out, the report is likely to suggest that, in
limited circumstances, companies should have to place a shareholder-selected
board nominee on a company's official proxy material.

Under current SEC rules, shareholders elect directors and they also can
nominate candidates, but they can't include a nominee's name in the official
proxy material, which lists the company's candidates. The SEC has been
considering revising the rules because of concern that shareholders face
barriers in nominating and electing directors.

Options under consideration include allowing shareholder nominees on the
company ballot when a certain percentage of shareholders support a candidate
or when a "majority of shareholders" express serious concern about the
board's makeup.

Although it isn't clear what the SEC's final rules will look like, people
familiar with the matter said there is a desire within the commission to
open the process to allow for greater corporate democracy.

"Something measured has to be done to make it possible for significant
shareholders who are not simply intrusive and disruptive to be involved in
the process," one SEC official said. In April, SEC Chairman William
Donaldson said the "time has come" for a thorough review of the proxy rules
to "ensure that they are serving the best interests of today's investors."

The five-member commission is scheduled to get the report Tuesday and will
then work with the staff to issue proposed rules. An SEC spokesman declined
to comment.

Any proposal to give shareholders greater access to corporate proxy material
likely will be met with fierce opposition from the business community. Many
large companies have told the SEC that allowing shareholder nominees on the
proxy statement could be harmful and asked the agency to uphold the status
quo.

In a letter to the SEC last month, the Business Roundtable, a trade group
representing large corporations, said investors "may nominate directors for
self-serving reasons, such as personal gain or to further a political
agenda." Intel Corp., in a letter last month, said giving investors access
would "turn the proxy statement into a municipal or state voter's handbook"
and confuse shareholders with too many candidates.

Shareholder advocates long have pushed for rules that would ease the process
of allowing investors to elect directors of their choice, rather than
picking candidates selected by the company. The issue gained steam following
scandals at companies such as Enron Corp. and WorldCom Corp., where
directors were criticized for either ignoring or not spotting red flags.

Sarah Teslik, executive director of the Council of Institutional Investors,
an organization of labor and corporate pension funds, said shareholders
aren't trying to declare "open season" on directors but want the right to
nominate board members in certain circumstances, such as when there are
"worrisome" problems at a company.

Write to Deborah Solomon at [e-mail]

Updated July 10, 2003