There are three rulemaking proposals before the SEC that, if enacted, would encourage market forces to restore investor confidence. I encourage readers to e-mail Mr. Jonathan G. Katz, Secretary, SEC, to support each of the following (be sure to indicate which proposal you're supporting in the subject line of each e-mail):
- Request for Rulemaking To Amend Rule 14a-8(i) To Allow Shareholder Proposals To Elect Directors: SEC Rulemaking Petition File No. 4-461.
Les Greenberg and James McRitchie petitioned the SEC to allow shareholder access to the corporate proxy to elect directors. The new rules requiring "independent directors" miss the point, since they don't preclude installation of the CEO's golfing buddies or close friends. Friends have a hard time asking the tough questions or keeping CEO pay in line.
Currently, the only alternative for shareholders who don't want to sell is to use the very expensive proxy solicitation process because corporations can bar shareholder nominees from appearing on the corporate ballot. Shareholders are left with old Soviet style election. You can vote, but the corporation's ballot only lists one candidate for each position.
Until directors can be removed from office by shareholders, they will not be responsive to shareholders or to the larger society.
- Press Release
- Comments
- Solicitation of Public Views Regarding Possible Changes to the Proxy Rules, comments due June 13, 2003.
- Press Release
- Formal Comment Period Closed 12/6/2002 (We Won!). Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies: Release Number 33-8131.
The SEC has proposed that mutual funds disclose their voting policies and votes in corporate elections. Fund holders could learn if their investments are being voted in their interests or those of fund managers.
However, to really do the job, the proposal should be amended to require fund managers to disclose conflicts of interests. For example, Fidelity reportedly earned half of its $9.8 billion in revenues from fees paid by companies in which its funds are invested. It therefore has an incentive to vote with company management in order to keep this fee business, yet disclosure rules permit it to keep its conflict of interest secret.
Additionally, the proposal should be amended to require data be presented a readily accessible format. For more information, see Fund Democracy.
- A petition by the Rose Foundation for Communities and the Environment and others. Request for Rulemaking for Clarification of Material Disclosures With Respect to Financially Significant Environmental Liabilities and Compliance with Existing Material Financial Disclosures: 4-463.
It requests the SEC to adopt regulations requiring that reportable environmental liabilities be aggregated to determine whether they exceed the SEC’s materiality threshold, as recommended by American Society for Testing and Materials International (ASTM) and others. Such disclosures would better enable shareholders to determine the real value of their shares and would encourage companies to act responsibly, knowing that environmental liabilities must be reported.
In 1998, the EPA’s Office of Enforcement and Compliance Assurance completed a study that found that 74% of companies failed to report in their 10-Ks cases where environmentally related legal proceedings could result in monetary sanctions over $100,000.1 Only 26% of civil and administrative proceedings involving penalties were correctly disclosed. Even worse, only 16% of proceedings involving court-ordered environmental projects and 4% of proceedings involving Resource Conservation and Recovery Act corrective actions were correctly disclosed. The result is that investors who rely on inaccurate 10-Ks for an assessment of pending liabilities are left in the dark. This rulemaking would turn on the lights.
with the Corporate Governance NETwork!
Contact: jm@corpgov.net