SEC puts new rules for shareholders to nominate company directors on hold due to lawsuit

Monday, October 4, 2010

SEC puts new shareholder rules on hold due to suit

WASHINGTON — The government said Monday it is putting on hold new rules that make it easier for shareholders to nominate directors of public companies, after the U.S. Chamber of Commerce sued to block the changes.

The new rules adopted by the Securities and Exchange Commission were due to take effect in time for next spring’s elections season for a majority of public U.S. companies. The rules allow groups that own at least 3 percent of a company’s stock to put their nominees for board seats on the annual proxy ballot sent to all shareholders.

The changes were long sought by investor advocates. Under the current system, investors must appeal to shareholders at their own expense if they seek new directors on a company’s board or a bylaw change.

The chamber, which is the country’s biggest business lobby, says the rules would allow the proxy process to be used by unions and other groups to promote narrow interests.

SEC spokesman John Nester said Monday the agency believes the rules are in investors’ best interests, and that it will “vigorously” defend them against the lawsuit. The SEC decided to put the rules on hold to eliminate “any uncertainty, unnecessary cost or disruption that could result for companies and shareholders” while the legal proceeding continues, he said.

Nester said the SEC expects the case to be resolved by late spring.

The SEC voted 3-2 in August to adopt the new rules, with the panel’s two Republican commissioners voting no.

The debate over the rules comes as investors are angry about risks some corporations are taking for short-term profit gains and extravagant compensation packages for executives. Getting candidates on the board gives supporters a better shot at influencing company policy.

The rules aren’t due to kick in for three years for the roughly 5,000 companies deemed small, with $75 million or less in market value, of the total 10,000 to 12,000 public U.S. companies.

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