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Where are the funds?

Many public and union pension funds, along with other institutional shareholder activists, regard proxy access as the holy grail of corporate governance. But they have filed few proposals calling for corporations to allow shareholder access to corporate proxy materials to nominate directors.

In all, such proposals were filed at only 18 companies as of Feb. 1, and few of them at major ones.

Instead of sitting on the sidelines, activist investors should take advantage of the opportunity to file access proposals, the first time they have been permitted by the Securities and Exchange Commission since 2007.

Institutional investors are selling themselves — and their beneficiaries — short.

Many of these investors were largely responsible for the inclusion of proxy access in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The legislation authorized the SEC to create rules to implement proxy access. When the U.S. Court of Appeals in Washington invalidated the SEC's first attempt last year, many of these institutions asked the SEC to seek a rehearing of the case, or repropose proxy access rules to address concerns raised by the court.

The SEC ultimately decided not to appeal the ruling or reissue its regulations, and instead, reopened access proposals for shareholders enabling them to propose their own terms when nominating directors. But it appears the priority of many activist institutional investors is for access mandated by regulation, rather than proposed by shareholders.

Only one group of U.S. pension funds has taken advantage of the new SEC latitude and filed at only one company. The group is led by the $113.7 billion New York City Retirement Systems — the Employees, Fire, Police, Teachers and Board of Education pension funds — and joined as co-filers by the $10.6 billion Illinois State Board of Investment, $144.8 billion California State Teachers' Retirement System, $71.8 billion North Carolina Retirement Systems and $23.2 billion Connecticut Retirement Plans & Trust Funds. That group filed a proposal at Nabors Industries Ltd. It is set to come to a shareholder vote at the company's annual meeting in June.

Other institutions have stepped up at a few companies. Norges Bank Investment Management filed six access proposals, the largest number of any proponent.

Already access proposals by other share-holders have had victories in the early part of the proxy season, upending concerns activist institutional investors might have had about corporate reception to them.

LongView Funds, a unit of Amalgamated Bank of New York, withdrew its proxy access proposal at Hewlett-Packard Co. after the company agreed to include in its 2013 proxy statement a board-approved proposal asking shareholders to vote on proxy access.

In 2007, the last time the SEC allowed proxy access proposals, shareholders voted 43% in favor of access at HP. Only two other such proposals went to a vote that year.

Corporations ought to take the initiative to offer access proposals, taking HP's lead even further. They can then set the terms to their advantage.

For most companies, access won't likely be disruptive.

First, shareholders are likely to nominate directors only sparingly, as the current re-election of the vast majority of directors attests to shareholder satisfaction with them.

Second, any shareholder nominee would need the voting support of other shareholders to win election. Shareholder nominees would run against board-nominated candidates, encouraging boards to put forward nominations better aligned with shareholder interests.

On other proxy issues, pension funds and other activist institutional investors have demonstrated their ability to appeal to a wide segment of the shareholder base and achieve success with proposals that have been instrumental in overhauling corporate governance, making it more accountable and responsive to shareholders.

For example, United Brotherhood of Carpenters Pension Fund, Washington, and carpenters' union affiliated pension funds led the effort to require directors of boards be elected by a majority of shareholder votes. The campaign over the last few years has built a groundswell of support that has swept most S&P 500 companies into scrapping their plurality-vote standard.

Distrustful companies can take comfort in the fact that not all shareholder activists embrace proxy access, splitting shareholder support.

Edward J. Durkin, director-corporate affairs department of the carpenters union, wrote a 2009 comment letter to the SEC opposing the proposed proxy access rules that the SEC ultimately adopted and the appellate court subsequently invalidated except in certain circumstances. He wrote: “Clear evidence has not been presented to demonstrate that ... the proposed access right will advance the goal of enhanced board accountability, without exacerbating short-term pressure on boards of directors that could undermine long-term corporate and shareholder value creation.”

“The better course of action would be for the commission to immediately confirm the right of shareholders to submit proxy access proposals and allow the private ordering process to develop a new and effective accountability mechanism,” Mr. Durkin wrote.

Access clearly would give shareholders a bigger voice in nominating directors and more oversight of boards and their actions. It also would make boards more responsive and accountable to shareholders, in particular in nominating directors better aligned with shareholder interests.

On the trail toward this holy grail, proxy access proponents must be adventurous. They shouldn't wait for the SEC to reissue a one-road map, which might not prove to be the best path leading to corporate governance improvement for every company.