TESS VIGELAND: In this time of wild market swings, you may actually want to take a look at those proxy statements you get in the mail if you own stock or a mutual fund. You know, the ones you probably take out of the envelope and toss right in the recycling bin?
Regulators are looking at a major overhaul of the system that allows you as a stockholder to vote on company issues. The SEC has proposed two very different rules about investors having a say in who’s on the board. But many shareholder advocates worry it’s just the start of some big changes. Marketplace’s Amy Scott reports.
[Sound of investors speaking at Wal-Mart’s annual shareholder meeting]
AMY SCOTT: This is the sound of corporate democracy at work.
At Wal-Mart’s annual meeting a few months ago, investors submitted 11 shareholder resolutions. They called on the board to expand health-care coverage for workers and to disclose the company’s political and charitable contributions.
None of them passed, but shareholder activists see these proposals as an essential way to communicate with management and directors.
Tim Smith chairs the Social Investment Forum. The nonprofit group promotes socially-responsible investing. He says each year, shareholders end up withdrawing up to a third of their proposals, because boards respond to investors’ concerns.
TIM SMITH: These resolutions aren’t just trying to “send a message to the board room.” They actually are a very creative stimulus to encourage companies to make a change.
Now, shareholders worry their rights to have a say in company matters are in danger. The SEC is considering two competing changes to proxy rules. One would clarify a current rule. It essentially prevents shareholders from adding their own board candidates to a company’s proxy statement.
The other would clear the way for shareholders to nominate their own directors. But investors would have to own at least 5 percent of the stock in order to do so.
JILL FISCH: Five percent of a large public company, a Fortune 500 company, is a huge amount of stock.
Jill Fisch teaches business law at Fordham Law School:
FISCH: There’re very few investors that own 5 percent. And since all we’re talking about is a procedural proposal that the other stockholders have to approve, why should you need 5 percent? If it’s a bad proposal, the other stockholders can vote it down.
As part of its proposal on director nominations, the SEC has also raised questions about the nature of shareholder proposals themselves. Currently, an investor must own $2,000 in a company’s stock to submit a proposal.
The Commission wonders if that should be increased to $4,000, or $10,000. The SEC also asks if it should be harder for shareholders to resubmit proposals that have failed in past years.
Amy Goodman with the law firm Gibson Dunn represents corporations in securities cases. She says shareholders get to vote on the big issues, like mergers or board elections.
AMY GOODMAN: But when it comes to routine, day-to-day decisions, it’s just not realistic to expect shareholders to be able to have a large say. I think their say comes through electing the directors who act in their interest.
With all the recent corporate scandals, many may wonder if directors always act in their shareholders’ interests. A spokesman for the U.S. Chamber of Commerce says stockholders have plenty of ways to communicate with board members without resorting to proxy votes.
But social investor Tim Smith asks what about companies like this one?
SMITH: A company in New York, Dover, this year, where Walden Asset Management had a shareholder resolution, held a stockholders meeting, and they asked us not to come, because they didn’t want to have any shareholders present. Is this an example of a company that’s listening to its shareholders?
The public has until October Second to comment on the SEC’s proposals. Chairman Christopher Cox has promised a final rule sometime this fall.
In New York, I’m Amy Scott for Marketplace Money.
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