Ah, time for a reality check on the Wall Street Journal/Administration party line. Here we’ve been told how horrible Sarbanes-Oxley is, and how those tough corporate governance measures are bad for the competitiveness of US markets.
Like many of the things the officialdom in Washington has been telling the public, this line of reasoning doesn’t appear to hold water. It turns out foreigners like regulations that strengthen corporate governance because they recognize those rules protect their interests. Specifically, foreign institutional investors are telling the SEC that its opposition to giving investors more power to change boards is wrongheaded (other countries have the sort of laws that the SEC is trying to block). Further note that this international group sees the SEC’s moves to reduce investor protection as retrograde rather than progressive.
From the Financial Times:
International investor confidence in US markets will be damaged unless regulators rethink plans to give shareholders only limited powers to change the make-up of US company boards, a group of leading investors has warned.
The investors, who include the Australian Council of Super-Investors and the UK’s National Association of Pension Funds and manage $2,100bn in assets, have criticised the proposals from the Securities and Exchange Commission on board nominations by investors.
“The harsh reality is that US corporate governance practices are on a relative decline,” the group said in a letter to the SEC. “Political winds in the US have recently swung toward rolling back investor protections. This does not give us confidence about future rights of shareholders in the US.”
The letter was sent as Annette Nazareth, Democratic commissioner at the SEC, announced her resignation. It followed the resignation of Roel Campos, a fellow Democratic commissioner, known to support greater shareholder rights on board composition.
“Rights to provide real director accountability to shareholders are sorely needed in the US,” said Daniel Summerfield, co-head of responsible investment at the Universities Superannuation Scheme, the UK’s second-largest pension scheme and a signatory to the letter to the SEC.
The group has joined investors urging the SEC to rethink two plans put forward in July on rules on shareholder rights to nominate directors. They contrasted the US, where rights are limited, with other markets – such as the UK and Australia – that allow shareholders to dislodge ineffective directors.
The issue has come to a head this summer after the SEC put forward two proposals. The first would allow companies to veto shareholder proposals to nominate candidates to boards.
The second would allow shareholders who have held more than 5 per cent of a company for more than a year to put forward changes to bylaws or articles, enabling them to nominate board candidates. The SEC has also added conditions. Shareholders said this was “onerous” and “unworkable”.
US executives believe that opening up board elections would make companies vulnerable to “special interest” lobby groups, for example labour unions, who could push their own agendas.
