Activists Lose a Big One
from March/April 2008
by Peter Galuszka
Shareholder activists’ short-lived freedom to nominate directors by way of a company’s proxy has come to an abrupt end. Securities and Exchange Commission chairman Christopher Cox opted late last year to leave such decision-making where it had previously rested— in the hands of boards and management. As a result, investors who want to nominate an alternate slate can do so only through expensive and often messy proxy battles. The decision will sit well with most board members. Corporate Board Member surveyed 450 of them and found that 72% oppose giving shareholders more of a say in nominating directors.
“This doesn’t mean I don’t want change,” Cox said. Many remain unconvinced of that. Cox’s decision, expressed as a casting vote among the commissioners, unwinds a 2006 ruling by a federal appeals court that seemed to open proxies to activists in a case involving the American Federation of State, County and Municipal Employees and insurer American International Group.
That ruling pushed the SEC into action, and it finally split down party lines to revert to the pre-2006 closed-proxy status quo, which had been in force for 16 years. Annette Nazareth, the sole Democrat on the commission now that Roel Campos has left, was no match for Republicans Paul S. Atkins and Kathleen L. Casey—and Cox. If he’d sided with Nazareth, the tie vote would have left the proxies open to shareholders. But he didn’t.
Proxies are likely to remain closed to dissidents through the end of the Bush administration. A Democrat in the White House, however, would appoint a new chairman, and with the number of Democrats back to two, his or her casting vote would probably open up boardrooms to shareholder nominations.
