SEC's Atkins: reply to court soon on proxy access

By Kevin Drawbaugh

WASHINGTON (Reuters) - With the 2007 proxy season about to start, the U.S. Securities and Exchange Commission hopes to reply soon to a court decision casting doubt over how much power shareholders should have in choosing corporate boards of directors, an SEC commissioner said on Tuesday.

"In light of that decision, we need to clarify the situation," Commissioner Paul Atkins said at the Reuters Regulation Summit in Washington.

Asked whether an SEC statement can be expected before companies start mailing proxy statements with director nominations to investors, and holding annual meetings where directors are picked, Atkins said: "I should hope so."

A September decision in the U.S. 2nd Circuit Court of Appeals overturned 16 years of SEC practice that routinely allowed companies to exclude certain shareholder proposals from proxy statement ballots sent annually to investors.

By excluding such proposals, company managers can effectively block shareholders from voting on them.

The court -- which covers New York, Connecticut and Vermont -- ruled that companies should not be allowed to exclude proposals to let shareholders consider ways to give themselves more say in how corporate directors are chosen.

The ruling came in a case involving the American Federation of State, County and Municipal Employees (AFSCME), a labor union, and U.S. insurer American International Group Inc.

(AIG.N: Quote, Profile, Research, Stock Buzz).

AFSCME, an AIG investor through a union pension fund, in 2004 asked to insert such a proposal in the AIG proxy. The company sought and received SEC permission to exclude the proposal, and AFSCME sued over the matter.

The SEC filed a brief in the case backing its policy of permitting exclusion of such proposals from proxy ballots.

"We said we had been applying this rule consistently ... The commission voted on that and I think that's probably still our view," said Atkins, the longest-serving member of the SEC, a Republican and close ally of SEC Chairman Christopher Cox.

But other SEC commissioners, including Democrat Roel Campos, have said the agency should take the opportunity presented by the court ruling to write a rule giving shareholders greater access to the proxy ballot.

Investor activists have seen the SEC's expected reply to the court as a way to resurrect efforts to give shareholders more proxy access -- an issue last debated in 2003-2004.

Under previous SEC Chairman William Donaldson, agency staff put forward a proposal to boost investors' boardroom power. The measure was attacked by corporate interests and never adopted. By early 2005 it had faded from view.

The AFSCME court decision has stirred confusion in the corporate governance world. The SEC has twice been expected to clear up the matter, first in October and then in mid-December, but the agency both times put off a decision.  Continued...