In a long-awaited vote, the Securities and Exchange Commission voted late last month to prevent investors from nominating directors of publicly-held companies by proxy vote:
The anti-investor vote by the three sitting commissioners and the agency's chairman, Christopher Cox, took place on Wednesday (11/28/07). The S.E.C.'s board is supposed to be nonpartisan; two commissioners represent Republicans and two represent Democrats. (The chairman is appointed by the president.) One Democratic seat is vacant.
The two Republican appointees - Paul S. Atkins and Kathleen L. Casey - voted with the Business Roundtable and the United States Chamber of Commerce on the issue. The lone Democratic commissioner - Annette L. Nazareth - opposed the move to keep owners from choosing board representative. Sadly, she has announced plans to leave the commission.
Before a court ruling earlier this year that allowed shareholders to nominate directors directly, the only way owners could nominate corporate directors before the ruling was to mount costly proxy battles. Cox, the chairman, said the vote was only a temporary ruling and that they would revisit the issue in the future. But all he had to do was abstain - making the vote a tie - and the court ruling would have held. But, no...he had to vote "yes," thereby casting his lot with corporations, even though the mission statement of the S.E.C. couldn't be more clear:
The main reason for the creation of the SEC was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges. Currently, the SEC is responsible for administering six major laws that govern the securities industry. They are: the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940 and, most recently, the Sarbanes-Oxley Act of 2002.
And how do big investors feel about this ruling?
"Chairman Cox has shown his true colors; he is not looking out for the investor," said Richard H. Moore, the treasurer of North Carolina, who oversees pension funds with $87 billion invested.
And why is this such a big deal? In one word: Accountability:
Certainly the losses generated over the last few months by major financial firms indicate that something is very wrong with the boards of these companies. These directors either knew of the risks their managers were taking and blessed them, did not know of them at all, or were advised of them and were unable to rein in the executives in charge.
Mr. Moore -the treasurer of North Carolina - noted that these boards happily paid enormous sums to executives when mortgage desks were coining money. "This is post-Enron, when boards should have understood that you cannot base compensation on short-term profits alone, and yet they continued to sign executive employment agreements with no claw-back provisions," he said. "That to me is a per se breach of fiduciary duty."
Perhaps when we get a new administration, the S.E.C. will return to its original purpose, so says former S.E.C. Chairman, Arthur Levitt:
"It's a sad day when the S.E.C., the investor's advocate, chooses to gag the voices of those they are charged to protect. Not only do shareholders deserve a say in who runs the companies they own, but free and fair markets depend on this oversight. Fortunately I believe that it is only a matter of time before investors are given the shareholder access they deserve."
Let's just make sure that there's a Democratic in the White House in a year who will appoint pro-investor professionals to these positions in the S.E.C.
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