Comverse Technology, the software group targeted by federal investigators for stock options backdating, will allow shareholders to nominate directors.
The decision by Comverse, believed to be the first US company to change its bylaws to enable investors to put forward their candidates for board elections, will put pressure on other companies to follow suit.
Investors’ requests to nominate their own directors have been opposed by the business community, which argues that the move would make it easier for hedge funds and other activists to hijack companies by gaining seats on their boards.
The Securities and Exchange Commission is divided on the issue, known as “access to proxy” from the name of the official document where companies list directors’ candidates, and has put off a decision until later this year.
However, people close to Comverse, which makes voice-mail software, said its new executives and directors wanted to be seen as corporate governance pioneers as part of efforts to put recent troubles behind it.
Under the new bylaws, contained in a regulatory filing issued on Monday, any shareholder that has held a 5 per cent stake for at least two years will have the right to put its own director candidates to the company’s annual meeting.
The policy, which mirrors a previous abortive proposal by the SEC, was welcomed by investors’ representatives. “The fact that companies like Comverse decide to adopt this policy shows that this is a concept not to be frightened of,” said Ann Yerger, executive director of the Council of Institutional Investors, one of the proponents of access to proxy.
Only one other US company, Apria Healthcare, is believed to have introduced similar rules, in 2003, but only as a policy, rather than through legally binding bylaws.
The move by Comverse, which has changed most of its board and top executives since the scandal broke, will not affect its tussle with the activist hedge fund Oliver Press Partners. The New York-based fund is urging the company to sell subsidiaries and has threatened to call an investor meeting to nominate its own directors to the board.
Oliver Press will not be able to benefit from the new rules, because it owns less than 1 per cent of Comverse.