The SEC’s vote this week to change the rules on shareholder influence in US boardrooms has predictably ruffled corporate feathers.
While SEC Chairman Mary Schapiro sees the move, which allows shareholders with a 3% plus holding in a listed company to nominate board members, as "a matter of fairness and accountability", business lobbyists are far from convinced. "A giant step backwards for average investors", reckons David Hirschmann of the US Chamber of Commerce. “So fundamentally and fatally flawed that it will have great difficulty surviving judicial scrutiny,” argues Kathleen L Casey, one of the two Republican Commissioners who opposed the change.
Paul Atkins, in the Wall Street Journal, warns the new rule would "increase the clout of special-interest groups at the expense of the vast majority of shareholders", and business leaders have vowed to fight on against the changes. On the wider principle of regulatory oversight of board behavior, there is still intense debate as to whether bosses’ pay is any of the government’s business.
But given what’s happened in the last couple of years, it’s hardly surprising shareholders are looking to flex their muscles. In a survey of senior investment and pensions figures published earlier this week by Penrose, two thirds of respondents anticipated growing shareholder presure on fund managers to boost levels of engagement with corporates.
Whatever your view on government "interference" in corporate governance standards, few would deny the behaviour of business directors falls within the remit of business owners. And since even the biggest institutional investors couldn’t possibly hope to keep tabs on governance at every company they invest in, there would seem to be only two alternatives. Cross your fingers and rely on the good faith of directors (seriously?). Or take an active approach to engagement within a reasonable and proportionate regulatory framework.