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SEC Expands Proxy Access, Puts Boards on Notice

Michail W. Robinson

On Wednesday, the Securities and Exchange Commission (SEC) approved a controversial rule that will provide investors with greater power to nominate directors of public companies. The three-to-two vote – which split along party lines with the Commission’s two Republicans voting no – enables investors that control at least three percent of a company’s stock to put their nominees for board positions on the proxy ballots that are sent out to shareholders each year.

With the change in place for the majority of public companies (those with more than $75 million in market value) ahead of next year’s proxy season, 2011 could very well be the first time that many investors see ballots that contain more candidates than available board seats. And while there is speculation that the SEC’s change may not stand up to expected legal challenges, it seems that, for the time being at least, directors are newly accountable to shareholders.

By some estimates, the debate over proxy access has been raging for decades. Indeed, the global financial meltdown, ballooning executive compensation, questionable risk management practices, and a widespread perception that board oversight has generally grown too lax, investor advocates coalesced public opinion to drive this change forward.

As a result, board members at public companies are now under greater pressure than ever before to be seen and heard as responsive to shareholder concerns and engaged in the companies they help to oversee.

Michael W. Robinson is Senior Vice President and Chair of the Corporate & Public Affairs Practice at Levick Strategic Communications and a contributing author to Bulletproof Blog.

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