Activist Investors Get the SEC Muzzle

SAN FRANCISCO -- The Securities and Exchange Commission's recent decision to block shareholders from nominating outside directors has put a damper on an important strategy for institutional investors.

The ruling, which allows companies to bar shareholders from submitting proposals, has sent institutional shareholders scrambling for alternatives. They can petition the SEC to reconsider the decision, negotiate behind the scenes with company boards for more pro-shareholder policies, or publicly confront boards with their demands for change.

Indeed, the SEC's Nov. 28 decision could lead to an unusually contentious season in 2008, according to RiskMetrics.

In recent years, big institutional investors have been diving into corporate governance-styled investments that are typically run by activist investment advisors. ...