SEC Approves New Rules On Disclosure For Investors

by Glen Shapiro, LawAndTax-News.com, New York

11 August 2003

The US Securities and Exchange Commission (SEC) has moved towards making companies more accountable to their shareholders, by approving proposed new rules which would require firms to reveal how they choose candidates for the boards.

The proposals put forward on Wednesday, which are open to consultation for thirty days, are part of a wider SEC accountability initiative which would allow shareholders to nominate company directors in cases where the company in question has rejected legitimate investor requests.

Currently, it is possible for shareholders to nominate candidates to sit on the board of directors, but it is not permitted to put a nominee'sname on the official ballot materials - or proxy - sent to investors. This makes it exceedingly difficult in practice to put forward candidates other than those supported by the company.

At a public meeting prior to the Commission's approval of the proposals last week, SEC chairman, William Donaldson announced that:

'These rules are an important first step in improving the proxy process as it relates to the nomination and election of directors,' adding that the Commission 'believes that better information about the way board nominees are identified, evaluated and selected is critical for shareholder understanding of the proxy process regarding nomination and election of directors.'

However, speaking to the Associated Press last week, president of the American Federation of State, County and Municipal Employees, Gerald McEntee criticised the latest proposals as too weak, arguing that:

'The nomination process is a closed loop totally controlled by current directors and management. No amount of disclosure is going to change that.'

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