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SEC votes to allow proxy access

The Securities and Exchange Commission voted 3 to 2 on Wednesday to make it easier for shareholders to nominate directors to sit on corporate boards, addressing concerns that boards often fail to conduct effective oversight of executives' decisions.

SEC Chairman Mary Schapiro and two Democratic commissioners voted to make it easier for investors -- or groups of investors -- who collectively own 3 percent of a firm's shares for three years to nominate directors for boards. The commission's two Republican members opposed the proposal.

Business groups argue that the costs of the proposal would be immense and that narrow interests, such as labor or environmental groups, could hijack the process.

Currently, shareholders can only nominate directors at annual meetings. But that is often too late because months earlier the company sends ballots to investors who won't be able to attend the annual meeting. These statements list candidates for the board, making it virtually impossible for a candidate first nominated at an annual meeting to receive enough votes to win a spot on the board.

The SEC's vote Wednesday will allow shareholders to nominate directors in the proxy statements. A shareholder or coalition of shareholders will be able to nominate one board member if the board has a total of seven or fewer members, or 25 percent of the total board size if it is larger.

"As a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own," Schapiro said.

By Zachary Goldfarb  |  August 25, 2010; 11:46 AM ET
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