10/1/03 N.Y. Times C1 2003 WLNR 4636609

10/1/03 N.Y. Times C1
2003 WLNR 4636609

New York Times (NY)

October 1, 2003

Section: C

Market Place; S.E.C. toReviseElectionRules For Directors

STEPHEN LABATON

Securities and Exchange Commission will approve rules next week to make it easier for company's shareholders to elect limited number of independent directors; new rules will allow large shareholders to nominate up to three directors for largest boards and fewer for smaller ones when there is substantial shareholder dissatisfaction with management of company; SEC chairman William H Donaldson in July endorsed staff report that urged more accountability in boardroom; photo (Market Place column) (M)
WASHINGTON, Sept. 30 The Securities and Exchange Commission will approve rules next week to make it easier for a company's shareholders to elect a limited number of independent directors, commission officials said Tuesday.
Commission officials said that the new rules would be the most significant revisions in decades to the role played by investors in governing publicly traded companies.
They would permit large shareholders -- typically institutional investors like mutual funds and pension funds -- to nominate up to three directors for the largest boards and fewer for smaller ones when there is substantial shareholder dissatisfaction with the management of a company.
Board elections bear no resemblance to democratic elections. Voters get one slate of candidates nominated by the board, and those candidates win even if most investors oppose them. Also, efforts by investors to replace directors through a proxy contest can be prohibitively expensive; the new rules are intended to reduce sharply the costs of challenges.
In the face of a large number of corporate scandals, William H. Donaldson, the chairman of the commission, endorsed a staff report last July calling for more accountability in the boardroom.
That report outlined in general terms recommendations that would have the effect of permitting big shareholders to propose alternative candidates for the board if a majority of shareholders had shown dissatisfaction with the existing board and management. Officials said that the new rules, which have been opposed by chief executives of some of the nation's largest corporations, had the support of a bipartisan majority of the five commissioners and would be approved next Wednesday, enabling them to go into effect in time for next spring's proxy season.
The rules set up a two-year process for selecting new independent directors.
In the first year, a triggering event must occur. For instance, a majority of shareholders could vote to open the election, or a sizable percentage of shareholders could withhold votes for the board's nominees.
In the second year, a contested election would take place, pitting the directors selected by the board against one or more nominees chosen by the largest bloc of shareholders.
The challengers would be able to nominate one to three directors, depending on the size of the board, officials said.
They said that the board members up for election would need to certify that they posed no conflicts of interest and had no financial relationship or special ties to the investors that had nominated them.
Even if the independent directors lose the election, the process will still probably have an effect on boards, officials said. They said they viewed a vote the first year about whether to open the elections as the equivalent of a vote on the way a board is overseeing a company's affairs.
"That first vote will set in motion its own set of dynamics that boards will be hard pressed to ignore," a senior official said.
Officials at the commission emphasized that the new voting procedure was not meant to be used in many circumstances but was intended to be a vehicle for shareholders who are dissatisfied with a company's direction.
The debate within the commission over the reach of the new rules has prompted a significant lobbying battle between management groups opposed to greater shareholder involvement and labor and other organizations that want shareholders to have a bigger role in the selection of directors.
Earlier drafts of the proposals ran into strong opposition from the Business Roundtable, an association of chief executives, but were supported by groups like the A.F.L.-C.I.O.
At a Senate hearing this morning, Mr. Donaldson made a vague reference to the prospect of new rules but provided no details or timetable for their completion. Other officials said after the hearing that the rules were expected to be approved next Wednesday and described them in greater detail.
Mr. Donaldson said that in drafting the rules, the commission was trying to balance competing interests. The goal was to open boards to greater accountability without making the process unduly divisive or susceptible to any special interests.
"There is a trade-off between the efficiency and effectiveness of the board, working in the best interests of the corporation, as opposed to members with separate agendas, constituency interests if you will, which can be divisive to the board," he told the Senate Banking Committee. "We're trying to go down a narrow path. There should be greater shareholder participation if there is evidence that large numbers of shareholders are being ignored."
Other officials said that because the independent directors would be nominated by larger shareholders, like pension funds, the risk of catering to a small or parochial constituent interest was slight.
"To make this system work, it is critically important that a majority of shareholders who are dissatisfied be able to get access to the proxy machinery," said Harvey J. Goldschmid, a commissioner at the S.E.C.
Photo: William H. Donaldson, the S.E.C. chairman, in July endorsed a staff report that urged more accountability in the boardroom. New rules for electing directors are expected to be approved next week. (Photo by Bloomberg News)(pg. C5)

---- INDEX REFERENCES ----

COMPANY: BLOOMBERG LP
NEWS SUBJECT: (Economics & Trade (1EC26))
REGION: (USA (1US73); Americas (1AM92); North America (1NO39))
Language: EN
OTHER INDEXING: (Labaton, Stephen; Donaldson, William H) (BLOOMBERG NEWS; COMMISSION; EXCHANGE COMMISSION; REVISE ELECTION RULES; SENATE; SENATE BANKING COMMITTEE) (Donaldson; Harvey J. Goldschmid; Market; S.E.C; Securities; Voters; William H. Donaldson) (Stocks and Bonds; Regulation and Deregulation of Industry; Boards of Directors; Market Place (Times Column); Stocks and Bonds)
COMPANY TERMS: SECURITIES AND EXCHANGE COMMISSION
EDITION: Late Edition - Final
Word Count: 1155
10/1/03 NYT C1
END OF DOCUMENT

7/1/04 N.Y. Times C1
2004 WLNR 5509245

New York Times (NY)

July 1, 2004

Section: C

S.E.C. atOddsOnPlantoLet Big Investors Pick Directors

STEPHEN LABATON

SEC chairman William H Donaldson is unable to forge agreement among his deeply divided colleagues over proposal to permit large shareholders to nominate limited number of independent directors to corporate boards; deadlock all but dooms prospects for rule to be adopted in time for new proxy season that begins early next year; is major victory for corporate executives who have fought to kill rule and setback for labor organizations and institutional investors who have pushed for years to get commission to adopt it; also marks retrenchment for Donaldson, who embraced broad outlines of plan last summer and last fall, but has since become lukewarm about several of its key details in face of opposition from Chamber of Commerce and Business Roundtable; Donaldson says he expects agency will soon publish proposed rule requiring hedge funds, which are lightly regulated funds for well-to-do investors, to register with commission; photo (M)
WASHINGTON, July 1 The head of the Securities and Exchange Commission said on Wednesday that he had been unable to forge an agreement among his deeply divided colleagues over a proposal to permit large shareholders to nominate a limited number of independent directors to corporate boards.
The deadlock all but dooms prospects for the rule to be adopted in time for the new proxy season that begins early next year.
The paralysis at the agency is a major victory for corporate executives who have fought to kill the rule and a setback for labor organizations and institutional investors who have pushed for years to get the commission to adopt it.
It also marked a retrenchment for William H. Donaldson, the chairman of the commission. Last summer and last fall, Mr. Donaldson embraced the broad outlines of the plan, but he has since become lukewarm about several of its key details in the face of opposition from the Chamber of Commerce and the Business Roundtable, an organization of chief executives from the nation's largest companies.
"Right now there is no consensus," Mr. Donaldson said. "I'm not sure I agree with what anyone else thinks or anyone agrees with what I think."
In an interview, Mr. Donaldson also said he expected the agency would soon publish a proposed rule requiring hedge funds, which are lightly regulated funds for well-to-do investors, to register with the commission. Officials said the commission would begin the rule-making process in two weeks by voting to publish the plan for public comment. They said the agency would take final action on the measure this fall.
The hedge fund proposal has been questioned by Alan Greenspan, chairman of the Federal Reserve, and by some officials in the Bush administration. They have expressed concern that it could lead to more regulation of that industry, which has grown rapidly in recent years.
Mr. Donaldson said that adoption of the proposal would enable the commission to monitor an industry approaching $1 trillion in assets, and that the commission had no interest in setting onerous capital requirements or curtailing transactions that comply with existing laws.
"This fits in with looking around the corner and over the hill and anticipating problems before they arise," he said. "I would hope we apply risk assessment techniques to monitor the funds and ask questions about risks."
Officials say Mr. Donaldson holds the decisive vote on the issue. The agency's two other Republican commissioners, Paul S. Atkins and Cynthia A. Glassman, have questioned the proposal. It is supported by the two Democratic commissioners, Roel C. Campos and Harvey J. Goldschmid.
Mr. Donaldson is also the swing vote on the shareholder access proposal regarding director nominations, and his stance leaves the commission deadlocked on the plan.
Supporters say the proposal would fundamentally change the way companies govern themselves by giving major shareholders the opportunity to nominate directors if enough shareholders are dissatisfied with the company.
The agency's impasse means that the fate of the proposal could be determined by the outcome of the election. If the agency fails to reach an agreement in the coming weeks, it is unlikely it will be able to take a final vote on the measure before November.
Under the proposal, large investors would have the authority to nominate a limited number of directors -- between one and three depending on the size of the board -- if a sufficient number of all shareholders withheld their votes for the nominees put forward by the company.
In recent weeks, Mr. Donaldson has appeared to have backtracked on the proposal.
He warmly embraced it when it was put forward in a staff report last July, saying that steps had to be taken to put an end to the "imperial C.E.O." and that investors should not face the choice of either going along with management or selling their stock if they were dissatisfied. He also praised the proposal when the agency put it out for public comment last October.
"This is a significant step towards fixing current proxy rules," he said when the rule was formally proposed on Oct. 8. "The staff has developed a package of rule proposals that attempts to strike an important balance between shareholders who seek a more active voice in the proxy process, and those who have legitimate concerns about the impact of these proposals on the oversight, management, and operation of public companies."
"Board unresponsiveness, sometimes tied to corporate governance weaknesses, demonstrates the need for shareholders to have a more meaningful voice in the proxy process," he said at the time. He also lamented the fact that the agency had failed in previous attempts to give shareholders a say in nominating directors. Under current rules, shareholders get to vote for only one slate of candidates, who win even if most voters oppose them.
Mr. Donaldson now appears to have second thoughts about some of the provisions, although he declined to discuss them in detail Wednesday. He said he still supported the concept of giving institutional investors more of a voice, particularly at troubled companies, but that he had also become sympathetic to some of the views of the plan's critics. Corporate executives and others opposed to the plan contend that dissident shareholders would typically only nominate candidates with narrow or parochial interests, which could hamper corporate governance rather than enhance it.
"There ought to be some middle route that addresses the worries on both sides," Mr. Donaldson said. He said that he was not concerned that the agency would be unable to complete the rules in time for the next proxy season.
"It's more important that we get it right than we set some artificial deadline," he said.
Mr. Atkins and Ms. Glassman, the agency's two Republican commissioners, have publicly expressed concerns about the measure and privately opposed it, commission officials said, while the two Democrats, Mr. Campos and Mr. Goldschmid, have supported it. Mr. Goldschmid, who has been a close and important ally of Mr. Donaldson, has said that the shareholder proposal is one of the most important measures on corporate governance that the agency has under consideration.
Mr. Donaldson acknowledged that a central point of contention within the commission was a proposal that would permit a company's board to put forward a second group of directors if enough shareholders withheld their vote for the first. Groups favoring the original proposal, as well as Mr. Goldschmid, have said that the mechanism, called the proposal to cure, would render the rule virtually meaningless by giving a weakened board a second chance.
The Business Roundtable has said the cure proposal is essential, because the board is in the best position to put forward directors of different strengths and perspectives.
Photo: William Donaldson, S.E.C. chairman, initially embraced the proposal, but now appears to be backing away in the face of strong opposition. (Photo by Stephen Crowley/The New York Times)(pg. C4)

---- INDEX REFERENCES ----

NEWS SUBJECT: (Business Management (1BU42); Corporate Governance (1XO27); Economics & Trade (1EC26); Corporate Groups & Ownership (1XO09))
REGION: (USA (1US73); Americas (1AM92); North America (1NO39))
Language: EN
OTHER INDEXING: (Donaldson, William H (Chmn); Labaton, Stephen) (COMMERCE; FEDERAL RESERVE; SEC; SECURITIES AND EXCHANGE COMMISSION) (Alan Greenspan; Atkins; C.E.O.; Campos; Cynthia A. Glassman; Donaldson; Glassman; Goldschmid; Harvey J. Goldschmid; Paul S. Atkins; Pick Directors; Roel C. Campos; Stephen Crowley; William; William Donaldson; William H. Donaldson) (Executives and Management; Boards of Directors; Institutional Investors; Hedge Funds; Stocks and Bonds; Regulation and Deregulation of Industry; Executives and Management; Executives and Management)
COMPANY TERMS: SECURITIES AND EXCHANGE COMMISSION; UNITED STATES CHAMBER OF COMMERCE; BUSINESS ROUNDTABLE
EDITION: Late Edition - Final
Word Count: 1594
7/1/04 NYT C1
END OF DOCUMENT

10/9/04 N.Y. Times C1
2004 WLNR 5459894

New York Times (NY)

October 9, 2004

Section: C

S.E.C. MemberSaysAgency Has Bowed To Executives

STEPHEN LABATON

Harvey J. Goldschmid, a Democratic commissioner at the Securities and Exchange Commission, sharply criticized the agency yesterday for bowing to corporate executives who, he said, had blocked a proposal that would give shareholders more say in selecting board members.
The proposal, issued by the commission a year ago, would make it easier for shareholders who vote in proxy contests to reject a limited number of company directors. It has run into criticism from corporate executives and the United States Chamber of Commerce, as well as some members of the Bush administration.
The proposal stalled after the commission's chairman, William H. Donaldson, an early supporter, grew more lukewarm about it. That led Mr. Goldschmid, another early supporter, to express his frustration yesterday.
"The commission's inaction to this point has made it a safer world for a small minority of lazy, inefficient, grossly overpaid and wrongheaded C.E.O.'s," Mr. Goldschmid said in a speech in New York sponsored by the Investor Responsibility Research Center, which provides analysis on corporate governance issues to companies and institutional investors. "So far, in my view, the worst instincts of the C.E.O. community have triumphed."
Mr. Goldschmid's comments were his first public break with Mr. Donaldson, a Republican. The two men have worked closely together on a variety of issues, occasionally voting on the same side along with the agency's other Democratic commissioner against the agency's two Republicans. The close relationship between Mr. Donaldson and Mr. Goldschmid helped repair the agency after heavy turbulence during the first half of the Bush administration.
Although Mr. Goldschmid said that he remained cautiously optimistic that a deal could be struck over the proposal to give shareholders some measure of influence in proxy elections, other officials said his comments signaled that the measure was doomed, at least under the current leadership of the agency.
They said Mr. Goldschmid -- who had been engaged in months of futile negotiations with Mr. Donaldson over the measure -- would not have made the remarks if he had believed there was a chance that had and Mr. Donaldson could quickly resolve their differences.
But Mr. Donaldson refuted that assessment yesterday, saying he remained hopeful that a deal could be struck. Still, he said the agency would not issue a final rule until it reached a consensus. He also declined to say how much longer it would take to reach a deal.
"Put this into context," Mr. Donaldson said at a luncheon with reporters and editors of The New York Times after Mr. Goldschmid had made his remarks. "On this issue the commission has done nothing for 40 years."
Last year, Mr. Donaldson committed himself to taking steps to make boards more accountable to shareholders, and he and Mr. Goldschmid were the main forces behind the release of the proposal. But since then, it has come under assault by the Business Roundtable, a group of chief executives from the nation's largest companies. The agency's two other Republican commissioners, Paul S. Atkins and Cynthia A. Glassman, have also challenged it.
In recent months, Mr. Donaldson has backtracked from his initial and tentative endorsement of the proposal. He said yesterday that his judgment had changed in light of the extensive comments that were critical of the plan.
"The comments we got back were very valid," he said. "The original proposal was way too complicated."
He also acknowledged that the issue had been caught up in broader political debates that made it difficult to complete the rule.
"It is too much in a political environment of 2004," he said. "That's not an environment that fosters clear thinking. It's an environment in which it is too difficult to get an agreement."
Mr. Donaldson said he was sympathetic to arguments put forward by the Business Roundtable that the original proposal could have permitted investors to approve directors who represented narrow special interests. But he said the current system resembled "the old Soviet-style elections" in which shareholders basically have no choice but to either abstain from voting or sell stock.
He also said that "there's a fundamental agreement" among the commissioners that there is a problem if more than 50 percent of the shareholders abstain from approving a director.
"But what's the cure?" he asked.
On another issue, the way companies account for executive stock options, Mr. Donaldson said that he was already considering whether to seek a delay of any new rules before he received a request for such action this week from 51 senators. Those rules are supposed to be presented to the commission by the end of this year by an accounting regulatory body and take effect next March.
He also said that the agency was reconsidering one proposal to impose a special redemption fee on investors who hold mutual funds for short time periods and another that would prohibit investors from selling their fund shares after 4 p.m. Those measures were proposed after a series of scandals involving abusive mutual fund trading.
He said he had not decided whether he would stay at the agency if President Bush is re-elected and asks him to remain. He said he never sought the position and accepted the offer from Mr. Bush nearly two years ago because he felt compelled to take the job because it was a unique period in history, "like 1929."
Asked whether he felt he had completed all or most of the work he set out to achieve, he replied, "The job will never be done."
"I do serve at the pleasure of the president," he said. "Secondarily, without sounding arrogant about it, I serve at the pleasure of myself."
Saying that he did not "feel yet that it's time to go," he emphasized that he never aspired to the position and that he had been looking forward to other projects when President Bush asked him to be chairman.
"I don't lust after the job," he said. "It's not fun and games all the time."