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July 20, 2010
SEC Seeks to Overhaul Proxy Infrastructure for the First Time in 30 Years
    by Robert Kropp

A concept release published by the Agency seeks public comment in order to increase the transparency and integrity of the proxy system.


The Securities and Exchange Commission (SEC) announced last week that, for the first time in nearly 30 years, it will undertake a review of its proxy voting infrastructure that will take into account "significant changes since then in shareholder demographics, technology, and other areas," according to a press release from the Agency.

The announcement coincides almost to the day with passage in the US Senate of financial regulatory reform, which includes among its provisions several that address shareowner empowerment, including proxy access, or the right of shareowners to nominate candidates for corporate boards of directors. The bill passed by Congress gives the SEC authority to adopt a process for proxy access.

The 151-page
Concept Release on the US Proxy System seeks "public comment on concerns raised by investors and industry participants relating to the accuracy, reliability, transparency, accountability, and integrity of the US proxy system." The SEC also seeks public comment on communications and shareowner participation, as well as the relationship between voting power and economic interest.

One area of significant change in the proxy landscape since the Agency's last review is the increased influence of proxy advisory services such as
RiskMetrics Group, whose acquisition by MSCI was completed on June 1.

Observing that "companies and investors have raised concerns that proxy advisory firms may be subject to conflicts of interest or may fail to conduct adequate research and base recommendations on erroneous or incomplete facts," the Agency stated that its concept release "seeks comment on improving disclosure of potential conflicts of interest, enhancing regulatory oversight over the formation of voting recommendations, and requiring eventual public disclosure by proxy advisory firms of their voting recommendations in Commission filings."

The Agency also seeks to facilitate proxy voting participation by retail, or individual, investors, and suggests that improved investor education, the provision of advance voting instructions for retail investors, and the enhancement of investor-to-investor communications may be ways to accomplish it.

Also included in the concept release is a suggestion from the Agency's Investor Advisory Committee, that proxy materials be data-tagged in order to help shareowners analyze such issues as executive compensation and the qualifications of nominees for boards of directors.

Stating in a speech announcing the publication of the concept release that "more than 600 billion shares are voted at more than 13,000 shareholder meetings each year," Mary Schapiro, Chairman of the SEC, said, "The proxy is often the principal means for shareholders…to weigh in on issues of importance to the corporation. To result in effective governance, the transmission of this communication must be — and must be perceived to be — timely, accurate, unbiased, and fair."

The public comment period for the concept release will last for 90 days following its publication in the Federal Register.

 

 
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