Shareholders Win Rights to Infuence Boards

I wonder how this will work out? Reminds me of the old Bob Dylan song, "Time They are A-Changing".
Text in bold is my emphasis. From Reuters:

Shareholders won more power on Wednesday to shake up corporate boards in the United States after the financial crisis exposed weaknesses in how companies were managed.

The Securities and Exchange Commission voted 3-2 to adopt a rule that gives shareholders an easier way to nominate company directors.

Activist shareholders who want more say on how companies are run have long sought the ability to place their nominees' names on company proxy statements.

That demand increased after the government used billions of tax dollars to prop up companies like American International Group Inc and Bank of America Corp.

"The market meltdown represented a massive failure of oversight by boards as well as by regulators," said Ann Yerger, executive director of the Council of Institutional Investors, which represents big investors.

"Proxy access gives investors a way to hold directors accountable so they will be motivated to do a better job of monitoring and, if necessary, reining in management," she said.

The business community, Republican lawmakers and two dissenting Republican SEC commissioners think the rule will harm capital markets and give fringe groups too much power.

Under the rule, shareholders must hold at least 3 percent of the company's stock for at least three years to nominate directors. Shareholders must hold the stock until the date of the meeting at which director elections are held. Shareholders would be allowed to nominate up to 25 percent of companies' boards. They would not be allowed to nominate a director if their intent were to take over or change control of the company.

Companies with less than $75 million in market capitalization would get a three-year delay in compliance, to give the SEC time to study implementation in larger companies and make adjustments, if necessary.

Shareholders meeting certain conditions would be allowed to submit proposals to change rules to make proxy access easier. The SEC rule would act as the minimum standard.

The rule will go into effect 60 days after publication in the government's federal register. Eligible shareholders most likely will be able to place their nominees on the corporate ballot at 2011 annual meetings, which typically take place in May.

In the past decade, two other SEC chairmen have tried to adopt proxy access rules with no success. This time, the SEC has backing from the Dodd-Frank financial reform bill, which affirms the agency's authority to adopt proxy access rules.

"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," SEC Chairman Mary Schapiro said at a public agency meeting.

The legislation will help shield the SEC from some lawsuits. In the past, business lobby groups have threatened to challenge the SEC on grounds that the agency did not have the authority to adopt the rule.

Now, the business lobby will probe the rulemaking process and the rule for any weaknesses.

"We will use every available option" to fight the proxy access rule, said Tom Quaadman, a vice president with the U.S. Chamber of Commerce, the country's largest business lobby.

Republican Commissioner Kathleen Casey, who also voted against a proxy access rule in 2007, said today's rule was fundamentally flawed and she does not expect it to survive court scrutiny. Fellow Republican Commissioner Troy Paredes said the rule imposes a minimum right of access even if shareholders would prefer no proxy access -- an area that might be ripe for lawsuits.

The SEC had contemplated setting the holding period for stock ownership at one year, and creating a sliding scale ownership threshold between 1 percent and 5 percent.

Critics argued that the one-year holding period was too short and that requiring shareholders to own only 1 percent of a large company would make it too easy for companies to fall prey to special interest groups.

The Council of Institutional Investors, which represents investors that hold more than $3 trillion in assets, said 3 percent was a "very challenging but reasonable hurdle to impose on groups of long-term investors."

Before the SEC adopted the rule, shareholders could nominate directors but had to wage proxy fights to do so. That process is considered expensive and burdensome, according to activist shareholders.