Timothy B. Barrett, executive director and chief investment officer of the $2.9 billion San Bernardino (Calif.) County Employees' Retirement Association, said that while the proposed rules were a good starting point, the 5% threshold issue was a problem.
"From my standpoint, investors don't have access to management and they have no say," he said. "The more you open that up and the more you make that transparent, the better the overall process."
Alan Beller, director of the SEC's division of corporate finance, recently told a meeting of the American Society of Corporate Secretaries that the commission was pushing the entire proposal hard in order to have final rules in place for corporate annual meetings in 2004, most of which are held in the spring.
"I think, and you can safely assume, that the commission did not want to wait until the '05 proxy season" to have new proxy access rules in place, Mr. Beller said. The rules now under consideration, with public comment letters due at the SEC by Dec. 22, are the result of a process that began in April when the commission launched a review of existing proxy rules and regulations.
Mr. Bucklan said it was difficult to say how the final rules would look but he noted that, based on the number of public comment letters the SEC has received, the issue is hot.
"There are more comment letters than I've seen in a while," he said. "I think they'll be forced to take some action and I would like to think they would lower the threshold and make it lower than what is proposed. But we'll see."
In whatever form, the final rules are expected to lead to an increase in shareholder proposals even though shareholders will not be able to nominate new board members just yet. At most shareholders will be able to get a question on whether to activate proxy access onto the 2004 proxy ballot. Under the proposed rules, if a majority of votes support such a proposal, access would apply to the 2005 and 2006 annual meetings.
In addition, if more than 35% of votes cast in a director election in the 2004 proxy season are "withhold" votes, proxy access for 2005 and 2006 will go into effect.
"There will be more shareholder proposals than in the past," Mr. Beller told the group of corporate secretaries, noting that in the 2003 proxy season, more than 1,100 shareholder proposals were presented at corporate annual meetings.
Terence J. Gallagher, chief executive officer of consulting firm Corporate Governance Associates LLC, Scarsdale, N.Y., said institutional investors are likely to test the waters with shareholder proposals this year and then wait and see what happens.
"Institutions will say ‘let's take this first step and see what happens,'" said Mr. Gallagher, former vice president of corporate governance at Pfizer Inc., New York. "But then I suspect many will hesitate after that, because this whole process of nominating directors is going to be complicated for institutions."
"This is going to be the first time shareholders are going to be able to nominate directors, but it's quite a challenge," said Rhoda Anderson, a corporate governance consultant in Cranbury, N.J. "The triggers the SEC has set can't be met by this next (proxy) season so we won't see anything until 2005."
Mr. Fitzgerald, the Iowa state treasurer, said that even armed with the potential ability to change boards of directors, institutional investors are not out to put new directors on every board.