You know how elections work in Russia and other countries that pretend to be democratic but are really tightly controlled by a few powerful people at the top?
The powers-that-be put forth a candidate for an elected position, prohibit anyone else from running against that person, conduct a 'popular vote,' and then declare the candidate a winner.
Well, that's exactly how it works with electing directors of U.S.-based publicly traded corporations. Management nominates a slate of candidates–just one for each open board seat. For all practical purposes, the opportunity for investors to run candidates in opposition to the corporate slate simply doesn't exist.
The irony here is that the CEO reports to the board–the same people that he (almost always a he) has often hand-picked to serve as company directors. Of course, the board approves the CEO's compensation package. And the investors who own the company have very little say over who runs their company, or how much of the company's precious assets are paid to the CEO and other top management.
But new proposed rules by the Securities and Exchange Commission could begin to change all that. The new rules, if adopted, would make it easier for large shareholders, such as pension or mutual funds or groups of smaller investors, to nominate directors of public companies.
Last Sunday, June 7, 2009, The New York Times Magazine ran an excellent and easy-to-understand article on this topic highlighting the need for reform in corporate board rooms.
You can view the SEC's press release and a video comment from SEC Chairwoman, Mary Shapiro, here: http://www.sec.gov/news/press/2009/2009-116.htm.
Here's a brief summary of the new rules as published in FA Green, an online publication of Financial Advisor Magazine.
If adopted, these new rules could be a big step in the right direction. So supportive comments could help push them over the top of the barriers we know some corporations are putting up 'as we speak.'
Posted: June 8, 2009