Forced by the US courts to revisit the thorny question of how directors at public corporations should be elected, the Securities and Exchange Commission has offered investors a Hobson’s choice that will erode the limited rights they now have on this fundamental issue.
In the US, unlike most of Europe, shareholders cannot nominate a director candidate on the company proxy card. If investors are unhappy with the board and think there is a need for fresh blood, their only option is to wage a costly proxy fight. Access to the proxy to nominate directors would give investors a real crack at running candidates for the board. That would invigorate board elections and make directors more accountable to shareholders.
Institutional investors have long urged the SEC to adopt rules that offer shareholders the right to nominate directors on the proxy. But in late July Christopher Cox, the SEC chairman, proposed two competing initiatives that would in effect entrench corporate control of board elections. Not surprisingly, shareholders heaped scorn on both measures, in thousands of letters that poured into the SEC.
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