Feature: SEC tries to boost shareholders' democracy
(Xinhua)
Updated: 2004-04-04 15:01

The successful ouster of former Walt Disney Co. CEO Michael Esiner by shareholders has caused a chain-effect in other American companies, and even spurred the Securities and Exchange Commission (SEC) to start drafting a rule that would boost shareholders' democracy.

On March 1, about 3,000 shareholders from Walt Disney Co. forced the board to strip Chief Executive Officer Michael Esiner of his chairmanship.

Recently, Marsh & McLennan Cos. has agreed to nominate a director recruited by institutional investors, and MCI, formerly known as WorldCom Inc., would soon require the board to give the nominating power to the investors who hold at least 15 percent of the shares.

Meanwhile, the SEC is expected to enact a rule that would allow, under certain circumstances, shareholders of at least 5 percent of voting shares to put their own nominees on a company's official ballot together with the management's choices.

Making it easier for shareholders to nominate candidates would help prevent fraud and prod executives to act more in shareholders ' interests, according to SEC Chairman William Donaldson.

The move for greater shareholder democracy came in the wake of corporate scandals that had rocked investors' trust in management and the boards which were supposed to look after shareholders' interests.

But SEC has never been so aggressively pushed for such a change in company management since it was set up in 1934. For many years, SEC had been trying to formally cut shareholders' rights by prohibiting investors from making proposals related to a company's "ordinary business."

Only during the 1990s, the SEC began to make it easier for shareholders to put their proposals to a vote. The Sarbanes-Oxley Act was passed in 2002 and the stock-market rules were enacted in 2003.

Asserting the measures were still inadequate to protect shareholders' interests, Donalson proposed hareholders nominate directors under two circumstances: more than 35 percent of the cast votes disapprove board nominee, or a proposal to allow shareholder nominees is approved by more than 50 percent of the votes cast.

The SEC's move has came under attacks from some business leaders who said it had gone too far. The US Chamber of Commerce even said it might lodge a suit against the SEC on the matter.

The Business Roundtable of CEOs also expressed its worry that with the adoption of the new rules, too much control would be handed over to such institutional investors as mutual funds, insurers and pension funds.

However, analysts here said whatever the rules are, they should safeguard the interests of millions of small investors and give more power to shareholders in supervising company management.

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