SEC advances on boosting investors' say

WASHINGTON--Securities regulators took a step Wednesday towardgiving shareholders greater say in companies' decisions, tentativelyadopting rules requiring companies to disclose how they choosecandidates for their boards of directors.

The action by the five-member Securities and Exchange Commissionwas denounced as insufficient by a labor union leader, however. Amidthe erosion of investor confidence from the recent corporateaccounting scandals, big state, union and professional pension fundshave been pressing for changes to give shareholders more say incompany moves on executive pay and other matters.

The SEC proposal "will do nothing to solve the problem ofunresponsive boards of directors," said Gerald McEntee, president ofthe American Federation of State, County and Municipal Employees."The nomination process is a closed loop totally controlled bycurrent directors and management. No amount of disclosure is going tochange that."

The disclosure proposal, to be opened to public comment for 30days, is the initial part of a planned SEC initiative to enableshareholders to nominate company directors--after they demonstratethat the company had resisted legitimate requests by groups ofinvestors.

Under current rules, shareholders are allowed to nominatecandidates for director but they cannot put a nominee's name in thecompany's official ballot materials mailed to investors, known as theproxy. That makes it expensive and exceedingly difficult to mount acampaign for alternate candidates to those the company puts forth.

SEC Chairman William Donaldson has framed the proposed changes asextending the work of the sweeping corporate accountabilitylegislation enacted last summer at the height of the businessscandals that sapped investors' confidence.

"These rules are an important first step in improving the proxyprocess as it relates to the nomination and election of directors,"Donaldson said at the public meeting before Wednesday's unanimousvote. "The (SEC) believes that better information about the way boardnominees are identified, evaluated and selected is critical forshareholder understanding of the proxy process regarding nominationand election of directors."

Some business groups, while supporting the disclosurerequirements, have opposed the more fundamental changes in thenominating process, contending that they would create conflict amongdirectors sitting as a board.

AP