NEW YORK: US chief executives, labouring under scores of new rules to prevent future corporate catastrophes like WorldCom and Enron, are digging in, unwilling to cede more ground to corporate governance reformers.
New battle lines have been drawn a year after costly scandals drove the stock market to five-year lows and crippled institutional and retail portfolios in the debate over a proposed rule change that would give shareholders a much greater say in nominating directors.
More broadly, the nomination issue has companies, their advisers and critics wrestling with the question: How much more regulation is required to prevent another simultaneous failure of corporate ethics, regulatory oversight and accountant accountability?
None of this is free. The cost of auditing fees, attestations, the (rising directors and officers) premiums, said Pat Rondeax, partner with Hale & Dorr. This time and expense has not been dripping out, but has been like a dam bursting, and companies are feeling a bit distracted from delivering value to shareholders.
The Business Roundtable (BRT), Americas leading CEO group, has been stirred to action by Securities and Exchange Commission (SEC) chairman William Donaldsons effort to bring greater democracy to the proxy process. Its reaction ends a year of conspicuous silence in corporate governance issues.
The CEOs argue that all the new rules are enough.
I think everyone is asking how much is enough, and what the industry standard and best practices are going to be, said Isaac Lustgarten, a lawyer in the New York office of Arnold & Porter.
The CEO opposition, detailed in a BRT letter to the SEC last week, comes after an extraordinary outpouring of rules and regulations the legislative response to WorldCom Inc and other corporate scandals that essentially recast 60 years of established securities law.
Right now, the nomination of new board members is solely the province of the board nominating committee.
If democratisation efforts are successful, shareholders with large stakes, such as 3%, could place board nominees on the proxy.
Labour unions and state retirement plans support the SEC initiative, but the BRT has been joined by the National Association of Corporate Directors, among others, in opposing it.
The SEC has requested that the staff make a recommendation on the issue by July 15. Reuters