Proxies: The SEC's Stopgap Solution

Chairman Cox indicates he'll vote against shareholder access, but the agency will revisit the issue next year

The long-running and confusing battle over shareholders' access to corporate proxies is about to get even more jumbled. The Securities & Exchange Commission will meet on Nov.28 to vote on two very different corporate governance proposals. One would allow large shareholders to nominate board members. The other would reserve that right for the company itself.

The SEC was forced to take up the issue after a court decision in September, 2006, that seemed to pave the way for investor-nominated directors. Chairman Christopher Cox spent months searching for compromise, but with the agency's other four commissioners split, the SEC offered the two diametrically opposed proposals in July. In a move that left few eyebrows unraised, Cox voted in favor of both. And despite hosting three roundtable discussions since and receiving a record 34,500 letters, no decision has emerged.

That's about to change--at least temporarily. On Nov. 14, in testimony before the Senate Banking Committee, Cox indicated he expected to vote against proxy access now but vowed that the SEC would revisit the issue next year when the commission is back to full strength. (The September resignation of Roel C. Campos left four commissioners, only one of whom is a Democrat.) Many observers see the approach by Cox, who spent 17 years in the House before joining the SEC in 2005, as a classic political maneuver. Having failed to win a broad consensus, he'll take an interim solution and fight another day.

But those closest to the debate are in no mood to compromise. If anything, they say, the SEC has been too focused on finding middle ground on an issue where there is none. "What Cox is excellent at is being a politician," says Lynn E. Turner, a former SEC chief accountant and firm foe of the company-backed proposal Cox is expected to support. "I think it's likely investors will end up with fewer rights than they had before all this," he says.

Labor unions and giant pension funds such as the California Public Employees' Retirement System say the SEC should hold off on any vote until next year, when the board will have one more Democrat. And while their powerful rivals on the corporate side are relieved to have again beaten back what they see as a dangerous infringement, the temporary fix leaves them, too, facing uncertainty.

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