SEC risks reputation over investor rights, warns USS

21 November 2007

The US Securities and Exchange Commission will miss the chance to show it is serious about investor rights if it forges ahead with a ruling stopping shareholders putting forward candidates for corporate boards, according to UK pension fund the Universities Superannuation Scheme (USS).

SEC chairman Christopher Cox could announce his decision any day now on whether the regulator will go ahead with a vote on “proxy access” – which could effectively make it impossible for shareholders to nominate board members for the companies in which they hold a stake.

“If this ruling goes ahead, the SEC will once again appear to be missing an opportunity to demonstrate to global investors that they’re serious about developing a more effective system of investor rights,” said Daniel Summerfield, co-head of responsible investment at USS.

“Our view is that it’s critical that US policymakers see this will have ramifications for how overseas investors view the integrity of the US markets,” he said. “The US system is at odds with shareholders’ basic ownership rights, and lags behind other developed markets in terms of corporate democracy.”

USS, as the second-largest pension fund in the UK, is one of eight US and UK pension funds which have joined with US shareholder-rights organisation the Council of Institutional Investors – which has more than $3trn (€2.02trn) in member assets – to make an appeal to the SEC chairman on Monday. The eight pension funds own more than $300bn in US stocks between them.

In a news conference and in letters, they have called on Cox to delay the vote at least until the commission is back up to full strength. At present, it only has four of its usual complement of five commissioners following a recent resignation.

Other pension funds included the California Public Employees’ Retirement System (Calpers), Connecticut Retirement Plans and Trust Funds as well as Hermes – manager of the BT pension fund’s assets – in the UK.
 
Countering critics who suggest allowing proxy access will lead to a destabilisation of companies – by, for example, allowing trade union representation on management boards – Summerfield said in practice, this does not happen.

“Experience in other markets shows that this doesn’t happen; the tool is rarely utilised,” he said. “Since 2001, only a handful of companies in the UK have had shareholder-nominated directors appointed to their boards.”

He pointed out even in cases where a shareholder does nominate a candidate for the board, a majority vote is still required for that appointment to take place.

 

© Graham Bishop