If California is a proxy for the entire country, the prospects for more shareholder power in board of directors elections don't look good. While the Securities and Exchange Commission considers opening up the board of directors ballot -- and receives criticism for not going far enough -- a bill in California that lawmakers have significantly watered down is drawing a similar complaint. "At best, the proposed act is a misguided attempt to avoid the accountability and competence problems that faced Enron, WorldCom and others," Les Greenberg, a shareholder activist in Culver City, Calif., wrote in a stinging letter protesting amendments to the bill. "At worst, it would be a sham upon the investing public." Assembly Bill 2752, dubbed the "Corporate Elections Fairness Act of 2004", was introduced by Southern California Assemblywoman Judy Chu, (D - Monterey Park), and sponsored by Secretary of State Kevin Shelley. The bill initially proposed sweeping reforms to give shareholders a greater role in board of director elections. Currently, the nomination of candidates to the board can be so complex and expensive that small shareholders are virtually locked out of the process. The bill proposed to change that by going even further in two key ways than the rules under consideration by the SEC:
First, while the SEC proposal would allow investors -- or groups of investors -- who own 5% or more of a company's stock to nominate a director candidate under certain circumstances, the state bill proposed an even lower threshold of 2% ownership of a company's stock. (Both proposals required that shareholders owned their stock for at least two years.)
Second, the bill proposed a requirement that companies implement shareholder proposals that win a majority vote -- or else face a potential court order and fines of up to $100,000 a day.
"Originally, of course, we wanted to actually change the corporate elections process in a manner that was similar to the SEC proposal," Chu said in a telephone interview. "The whole idea was to open up the shareholder access to proxies so that there could be more accountability for the board of directors." That effort was lauded by Greenberg, who launched a grass-roots proxy battle against the restaurant chain Luby's ( LUB) four years ago. "We compliment the Act's author(s) and sponsor(s) for accomplishing in a few words what the Securities and Exchange Commission seems unable and/or unwilling to accomplish with its recently proposed Rule 14a-11," Greenberg wrote in an earlier letter supporting the first draft of the bill.