Controversial rules giving shareholders power to directly nominate company directors will take longer than expected after the US Securities and Exchange Commission said on Friday that it will not vote on the matter until early next year.
The SEC is considering whether and how shareholders can place nominees for director elections on US company ballots. It is the third time in third time in six years that the SEC has considered such a move which is opposed by business groups.
The agency has been widely expected to vote on the so-called proxy access rule this year, in time for the next proxy season. However, Mary Schapiro, SEC chairman, said on Friday: “It is my hope to finalise the rules early in the New Year.”
”I am committed to bringing final rules before the Commission regarding the ability of shareholders to nominate directors...We have received hundreds of comments that we are reviewing to ensure our rules are fair and appropriate,” she added.
Currently, companies nominate their directors. Shareholders can vote for but not nominate directors, except through a difficult process that requires them to contact shareholders at their own expense.
The proposed SEC rule on ”proxy access” would allow shareholders to nominate up to a quarter of a company’s board members.
It would allow shareholders to nominate directors if they own 1 per cent to 5 per cent of stock, depending on the company’s size, and amend a federal measure that allows management to exclude shareholder proposals that nominate directors.
Senator Charles Schumer of New York said he was disappointed by the delay. “We hope that Chairman Schapiro will reconsider, or at least avoid a lengthy delay in voting on this important proposal to empower shareholders.“
There are long- established divisions between business and investors on the issue. Some of the world’s biggest investment managers back the proposal but many in the business community argue it would give unions and special interest groups too much say in how companies are run.
Separately, the SEC said on Friday that it would give small firms until next year to meet the 2002 Sarbanes-Oxley Act provision requiring auditors to assess whether the companies have adequate controls to prevent misstatements.
The regulator said that companies with less than $75m in shares available to the public must adhere to the audit rule by June. Such small companies were meant to start complying by the end of the year.
Ms Schapiro said there would be no further extensions. “Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance.”
Nydia Velázquez, Chairwoman of the House Small Business Committee, said that a recent study showed that the rules would have a negative impact on small businesses. “[The SEC should] implement the law in a way that doesn’t harm small companies that are already struggling to survive the worst economic contraction in decades,” she said.