Updated Aug. 25
The Securities and Exchange Commission on Aug. 25 approved new rules requiring public companies to include the board nominees of shareholders who own at least 3% of company stock in their proxy materials.
Under the new regulations, those shareholders must also have owned that stock for at least three years.
Also, the shareholder or a shareholder group owning at least 3% of the company’s stock could include nominations of either one director or up to 25% of the company’s directors, whichever number is larger, in the proxy materials.
“As a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own — candidates that all shareholder-voters may then consider alongside those who are nominated by the incumbent board,” said SEC Chairwoman Mary Schapiro, at an agency meeting.
The new rules go into effect 60 days after publication in the Federal Register; John Heine, an SEC spokesman, said it was unclear when that would be.
Institutional investors praised the SEC action.
“This is groundbreaking for U.S. shareowners,” Ann Yerger, executive director of the Council of Institutional Investors, said in a news release. “Access to the proxy will invigorate board elections and make boards more responsive to shareowners and more vigilant in their oversight of companies.”
Jack Ehnes, CEO of the California State Teachers’ Retirement System, West Sacramento, said the SEC approval was “most welcome” at the $134.3 billion system.
“One of the lessons of this current economic downturn is to be mindful that governance is a significant risk factor and that greater accountability, which this ruling affords, will go a long way toward mitigating that risk,” Mr. Ehnes said in a CalSTRS news release.
“While we applaud SEC Chair Mary Shapiro for the leadership and vision that resulted in this ruling, we understand that proxy access is to be used sparingly and only after other means of dialogue and negotiations have been exhausted,” he added.
The Social Investment Forum in a statement applauded Ms. Schapiro “for her strong leadership on this important issue, as well as the SEC staff for their tireless work on proxy access.”
“The Social Investment Forum and its members have been advocating for a federal proxy access rule since our founding in 1981,” Lisa Woll, CEO, said in a news release. “Universal proxy access is a fundamental shareholder right enjoyed in most developed nations around the world, so we are very happy to see the United States achieve parity on this critical market mechanism."