President Bush, in keeping with his "ownership society" platform, should embrace the Securities and Exchange Commission proposal that would give shareholders limited ability to nominate directors to corporate boards. That proposal has been pending for almost a year, since it was introduced last Oct. 14.
We should also hear from Sen. John Kerry on this issue.
Mr. Bush's platform calls for what he terms an "ownership society": programs promoting more individual economic control, such as expanding home ownership, providing for medical savings accounts, privatizing part of Social Security and creating a new "lifetime savings account."
The SEC proposal fits right into Mr. Bush's ownership society, as do corporate governance reforms designed in part to protect investors by providing for more disclosure. But the key corporate governance reform — greater shareholder ability to hold directors accountable by nominating alternative slates — is lacking.
Mr. Bush should tell the SEC commissioners, especially the Republican ones, that ownership means allowing investors direct say in the nominations of at least some directors, as called for under the SEC proposal. If the president wants individuals to have more control over their retirement assets and to assume more responsibility for them, he has to provide a way for shareholders to hold corporations — namely, directors — more accountable for their decisions.
That proxy access would help enable money managers, who invest individual account assets, including pension fund accounts, to hold directors more accountable.
The other side of that responsibility is that individuals must be able to hold their fund managers accountable, too.
To that end, similar to the SEC rule that recently went into effect requiring mutual funds to disclose proxy votes, money management firms handling separate account assets should be required to report their proxy votes to the SEC, which can then make them public.
The mutual fund disclosure rule allows investors to see how mutual funds manage conflicts of interest with corporations, which may also be clients. Pension plan participants need this disclosure also. They are vulnerable to conflicts between pension plan sponsors and money management firms. In a report issued this month, the Government Accountability Office found that conflicts exist in proxy voting because of the various business relationships that may influence a proxy holder's vote.
"Because of this limited transparency, concerned parties do not have the information needed to raise questions regarding whether proxy votes were cast in the sole interest of plan participants and beneficiaries," the GAO report noted.
The GAO proposes amending ERISA to require proxy-vote disclosure annually, as one way to make investment of participants' assets less susceptible to conflicts.
Such a requirement would add to the burden of managing defined benefit plans and might hasten their decline. Nevertheless, it is badly needed. The GAO report raises legitimate concerns.
The Bush administration should come up with proposals to ensure or verify that voting is done in the beneficiaries' interest. If the solution falls short of disclosure, then it must somehow safeguard participants. Disclosure, however, is the best and fairest solution, and the one that places responsibility with participants for assessing potential conflicts; it is in keeping with the ownership society idea. Money managers who choose to manage money as fiduciaries have to accept the responsibility of such disclosure.
Mr. Bush needs to do two things. He should push for immediate adoption of the SEC proxy access proposal, which is a modest one, because the SEC could have allowed a broader access for shareholders to make at least some nominations more immediately and without conditions imposed by the proposal.
And the president must promise a review of fiduciary issues concerning proxy voting and conflicts of interest to come up with an appropriate solution.