Shareholders should be given access to the corporate proxy ballot to establish procedures for nominating directors, said Harvey L. Pitt, CEO of business consulting firm Kalorama Partners and former SEC chairman. Speaking today at the conference of the Council of Institutional Investors in Washington, Mr. Pitt criticized the SEC for denying such proposals.
The SEC scheduled an Oct. 18 meeting to discuss the implications of a Sept. 5 appellate court decision that disagreed with the SEC's denial of a shareholder proposal on access at American International Group Inc. The American Federation of State, County & Municipal Employees Pension Plan, Washington, introduced the proposal in 2005 and pursued the litigation.
Boards should require directors to be elected by a majority vote by shareholders, who should be permitted to vote for or against, rather than only being able to express opposition by withdrawing, as is now the case, Mr. Pitt said, and the SEC should allow most types of shareholder proposals, saying shareholders should be able to debate hot governance issues.
Mr. Pitt also said the SEC overreached in trying to require hedge fund registration.
"We have the potential for a cataclysmic clash," he said. Hedge funds are taking riskier investments to produce high returns investors expect, "but not all those who decide to invest in hedge funds are as sophisticated as they should be; due diligence is lacking."
In another session, Dana Mead, a director of Pfizer Inc., New York, said "just say no" shareholder campaigns opposing director re-election have some merit. But singling out members of the compensation committee because of executive pay issues is unfair; such a campaign should target the entire board because it is ultimately responsible for compensation programs, he said.
Mr. Mead said he opposes shareholder access to the nomination of directors, fearing it would lead to various factions on the board that would make it difficult to set common goals.
On executive compensation, Mr. Mead said: "It going to be very hard to fix this system that in my mind is out of control. … There is a need to link (CEO) performance, compensation and shareholder value."