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SEC Debating Shareholder Proposals

Federal regulators are debating proposals related to shareholders gaining access to company ballots. One plan, setting a minimum level of stock ownership for the investors to get that access, has already stirred opposition from shareholder activist groups.

The Securities and Exchange Commission is considering two alternative plans, addressing one of the more contentious issues to come before the agency during the two-year tenure of Chairman Christopher Cox. One would make all such proposals for proxy access binding on public companies if they win a majority of votes of the company's shareholders, but also would require that shareholders together own at least 5 percent of the corporation's stock to get them on the ballot. Changes in companies' bylaws approved that way, for example, could lead to shareholders nominating their own candidates for the board.

That would give shareholders "complete freedom to structure the bylaw procedure, so long as that procedure complied with applicable state law and the company's charter," the SEC said in a background paper.

The other alternative is closer to the status quo, allowing companies to keep off their proxies shareholder proposals related to the election of board members.

That approach is favored by some business interests. "Our basic view is that providing shareholders access to the proxy ... is not a good path to go down because it just advances the agenda of special interests," Michael Ryan, executive director of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, said Tuesday.

Cox and the other four SEC commissioners were voting on the proposals at a public meeting Wednesday. One of them could be formally adopted in some form after a public comment period of several months.

The proposal involving a 5% requirement sparked opposition from shareholder groups after it was circulated in recent weeks.

If a 5 percent requirement were adopted, "that's probably too high a threshold to offer meaningful access," said Amy Borrus, deputy director of the Council of Institutional Investors.

Officials of three organizations -- the Social Investment Forum, the Interfaith Center on Corporate Responsibility and Institutional Shareholder Services, an advisory service for investors -- said that SEC plan would be a blow to investors because it would set a high threshold and eliminate the possibility of non-binding, or advisory, resolutions from shareholders.

Under current rules, shareholders who have had at least $2,000 in a company's stock for a year or more are allowed to put forward non-binding resolutions, a system that the shareholder activists said has resulted in positive corporate change. In many cases, they said, the advisory resolutions opened a dialogue between shareholders and companies, and were eventually withdrawn after company management agreed to make the requested changes.

In this spring's proxy season, such resolutions set a new record of 359 on issues such as environmental responsibility and enhanced disclosure of corporate political contributions, the activists told reporters in a conference call.

Tim Smith, chairman of the Social Investment Forum, said: "Any efforts to limit investor rights ... will galvanize broad opposition."

Also at their meeting Wednesday, the SEC commissioners were voting to issue a staff-written "concept release" seeking public comment on the future role in U.S. markets of international financial reporting standards, or IFRS, and whether American public companies should be allowed to use them instead of the U.S. standards known as generally accepted accounting principles, or GAAP. The SEC last month proposed eliminating a requirement that foreign companies "reconcile" their financial results with the U.S. standards _ the first step on a path that could lead to the acceptance of a single, global accounting standard for public companies.

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