The State of Wisconsin Investment Board may make open access to corporate proxy ballots - allowing shareholders to place candidates for directors on the ballots - one of its key corporate governance focus issues for the next proxy season.
"We definitely think it is something that could be done," said Keith L. Johnson, chief legal officer of the $55 billion pension fund, referring to having alternative candidates alongside corporate candidates on the same proxy ballot.
"Ballot access has been the Holy Grail of corporate governance," said Patrick McGurn, vice president and director-corporate programs, Institutional Shareholder Services Inc., Rockville, Md., commenting on the idea. It would be "the single biggest boost to corporate governance."
Two groups last week issued formal calls for open access, seeking more fundamental corporate governance changes than the corporate reforms recently enacted by Congress and proposed by the New York Stock Exchange. The two groups are the Social Investment Forum, an association for the socially responsible investing industry, and the Committee of Concerned Shareholders, a self-styled grass-roots group.
But others are skeptical about the idea.
Some opposition
"It's potentially very unwieldy," said Kenneth A. Bertsch, director-corporate governance at Teachers Insurance and Annuity Association-College Retirement Equities Fund, New York.
Charles M. Elson, law professor and director of the University of Delaware's Center for Corporate Governance, Newark, opposes allowing shareholder nominees to appear on corporate proxy ballots alongside corporate nominees. Instead, he prefers to strengthen nominating committees of the boards of directors.
Richard C. Ferlauto, director-pension and benefit investment policy at the American Federation of State, County and Municipal Employees, Washington, said: "This could be a very interesting proxy season (in 2003) because activists see it as an opportunity to raise more fundamental issues of corporate governance, like access to the corporate proxy ballot."
The Social Investment Forum, Washington, in a letter to SEC Chairman Harvey Pitt, asked the Securities and Exchange Commission to consider a two-candidate minimum for each directorship to boards and to develop a way for corporations to include shareholder nominees.
Timothy Smith, president of the Social Investment Forum and senior vice president of socially responsive investing at Walden Asset Management, Boston, a division of United States Trust Co. of Boston, applauded reforms wrought by the recently enacted Sarbanes-Oxley Act of 2002 and recently proposed by the NYSE. But "at the same time, socially concerned investors are profoundly aware that deeper reforms are needed," he said. "The work to change corporate America has just begun, and we're urging the SEC to move the process forward," he added.
In a separate effort, the Committee of Concerned Shareholders, Culver City, Calif., and James McRitchie, editor of CorpGov.Net, a corporate governance advocacy website in Elk Grove, Calif., jointly filed a formal petition for rulemaking with the SEC to require shareholder-nominated director-candidates to appear on the corporation's proxy ballots.
Current rule
Under the current SEC rule, only the names of director-candidates nominated by the corporation appear on the corporation's ballot.
"Director-candidates nominated by shareholders must go through an extremely expensive proxy solicitation process," according to Mr. McRitchie. A campaign for an independent slate of candidates now "is costly to mount and win," said Mr. Smith.
At the Wisconsin fund, Mr. Johnson said he and the staff are considering open access as one of the proposed target issues in the corporate governance plan being developed for the 2003 proxy season. He said the target proposals likely will be presented to the board for approval in October.
The Wisconsin investment board, a major corporate governance activist shareholder, has not made this idea one of its corporate governance focus issues before, he said. "It is definitely an area we could be including for our focus issue in the coming proxy season," Mr. Johnson said. That effort could mean "asking the SEC to allow for names of alternative director candidates to be on the corporate proxy ballot.".
Open access
SWIB also might ask individual companies to allow open access for their corporate ballots. "It is an area that needs the focus of institutional investors," he added.
But Mr. McGurn thinks the feasibility of the idea depends on the details.
"You don't want 1,000 names on the ballot," he said. "Gatekeepers would have to exercise some control" over how alternative candidates would appear on the ballot. "Giving shareholders more direct means of challenging the board would change behavior across the board."
Mr. Elson opposed the idea of competing candidates, saying it's not practical.
"The solution is an independent nominating committee and independent directors," he added. The committee could sort through nominations and determine the best candidates to place on the proxy ballot, he said.
Under an NYSE proposal, nominating committees for companies without a controlling shareholder would be composed only of independent directors.
TIAA-CREF's Mr. Bertsch, said, "We are interesting in hearing ideas (about open access to proxy ballots for shareholder candidates) but view them skeptically. It's not clear a contested, democratic style election would be worth the conflict and confusion" at corporations.
