Editor's note: This is the third story in an occasional series exploring the rise in shareholder activism and its impact on U.S. corporations amid the economic downturn. The first explored reasons behind the trend. The second detailed efforts by investors to rein in soaring executive compensation.

Like baseball, voting for corporate board members is a time-honored springtime tradition.

But that tradition is increasingly under fire from angry shareholders who say the game is rigged.

Because the ballots provided to investors list only one slate of candidates, handpicked by company management, critics say the system is undemocratic and prevents shareholders from appointing representatives who will truly look out for their interests.

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Shareholder advocates have been clamoring for years to get equal access to the ballot -- known as a proxy card -- to field alternative choices for company boards. Now, as investors contemplate staggering writedowns at the world's largest financial firms, and as America prepares for a change in the political landscape, some shareholder advocates believe the chance to win proxy access is better than ever.

And while the rich sendoffs of subprime poster-boys Angelo Mozilo,

Countrywide Financial's

( MER) CEO, and Stanley O'Neal, the ex-

Merrill Lynch

( MER) chief, have made

"say on pay" the hot-button issue at this year's shareholder meetings

, it's possible that this proxy season could turn out to be one of the last in which board elections are conducted without opposing candidates.

"This is one of those issues, if it's ever going to get acted on, it would be in this current market environment, with a change in party in the

Securities and Exchange Commission and in the White House," says Patrick McGurn, special counsel at corporate governance firm RiskMetrics.

'Proxy Battles'

Among the groups that have pushed proxy access to the top of the agenda in recent years are the California Public Employees' Retirement System, or CalPERS, the nation's largest pension plan with $250 billion in assets under management, and the Council of Institutional Investors, an association of public, union and corporate pension funds representing $3 trillion in assets.

According to the council, shareholders' right to vote is "inviolate," and shareholders owning 5% or more of a company's stock should be provided equal space in company-issued proxy materials to field their own director nominees.

The SEC sees things differently, and recently delivered a stinging blow to the notion of shareholder proxy access.

The commission adopted a landmark rule in November

explicitly barring shareholders from placing director nominees on a company's proxy card

. The rule negated a 2006 federal appeals court decision that took the opposite position.

The SEC rule means that shareholders seeking to nominate alternative nominees for a company's board of directors are limited to waging so-called proxy battles, in which they distribute separate ballots and voting material to fellow shareholders -- a process that some say can cost millions of dollars for large-cap companies.

The SEC has promised to revisit the issue of direct proxy access in 2008, given that its five-member panel of commissioners voted on the rule when one of its two Democratic seats was vacant.

What's clear is that the SEC rule has not made the issue go away.

Rep. Barney Frank (D., Mass.), who heads the House Committee on Financial Services, decried the SEC rule as "a step backwards for shareholders," leaving them with inadequate resources to influence insular boards.

Prior to the vote, Frank reportedly threatened that Congress might suspend any SEC rule on proxy access adopted without a full panel of commissioners. A spokesperson for Frank would not comment on any forthcoming actions relating to proxy access.

Other legislators that have spoken out in favor of proxy access include Sen. Jack Reed (D., R.I.), Sen. Robert Menendez (D., N.J.) and Sen. Chris Dodd (D., Conn.).

The issue is getting attention on Capitol Hill, notes Michael Ryan, director of capital markets competitiveness at the U.S. Chamber of Commerce, one of the leading groups that oppose proxy access. For that reason, despite the SEC rule blocking proxy access, he says the Chamber of Commerce remains concerned about "where this might go."

According to Ryan, allowing shareholder to directly nominate directors would serve special interests rather than those of ordinary shareholders, and would ultimately result in fractured and dysfunctional boards.

Moreover, Ryan says that the spate of corporate governance reforms enacted during the past six years, on issues from disclosure about executive compensation to independent directors, make proxy access unnecessary.

"A lot of the things that created the basis for arguing why shareholders should have greater access have been addressed in a different manner," says Ryan.

Change to Win

Yet some shareholders see plenty of continuing examples of poor governance and oversight.

One group, a coalition of pension funds dubbed Change to Win Investment Group, blames directors at

Bank of America

(BAC) - Get Report

,

Citigroup

(C) - Get Report

,

Merrill Lynch

( MER) and other firms for failing to review the financial risks or adequately assess the steps that management was taking to control exposure during the subprime crisis.

Among the directors on the six-member committee responsible for assessing credit concentration at Bank of America, for example, Change to Win contends that

two did not qualify as independent under New York Stock Exchange guidelines

, while the committee chair's board seats at five other publicly listed companies suggests that she was overextended.

According to the Change to Win, the six banks at issue wiped out more than $254 billion in shareholder value between Jan. 31, 3007 and Jan. 31, 2008.

Some shareholders also cite the epidemic of stock option backdating that came to light in 2006 and led to hundreds of millions of dollars in restatements at companies including

Apple

(AAPL) - Get Report

,

Marvell Technology

(MRVL) - Get Report

and

KLA-Tencor

(KLAC) - Get Report

, as other examples in which directors were either unable or unwilling to police accounting shenanigans.

"The way you're going to resolve problems of non-performance-based CEO pay, the way you're going to deal with the outside risks taken by many of the investment banks in the subprime mortgage mess, all relate to making boards more accountable," says Rich Ferlauto, director of pension and benefit policy at the American Federation of State, County and Municipal Employees.

"The only real way you can do that is by giving institutional investors the ability to elect directors in a contest that's fair," he says.

While Ferlauto isn't holding out much hope for a policy change with the current SEC, even if it does reconsider its November regulation on proxy access, he believes the goal of proxy access is attainable within a year or two.

"The sense is we're at an end game and we're going to see proxy access," he says, noting that institutional investors have become much better at flexing their muscles by building bigger positions in companies and coordinating strategies among themselves to pursue key reforms.

If the Democrats win the general election and retain control of Congress, McGurn of RiskMetrics foresees a shareholder rights bill, including proxy access, within the first 100 days of a new administration.

It's impossible to predict how the political winds will ultimately blow, but some shareholders can already smell change in the air.