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Cox, in Denying Proxy Access, Puts His SEC Legacy on Line
By Kara Scannell
The Wall Street Journal
Thursday, November 29, 2007

A high-stakes battle over shareholder rights, dubbed "proxy access," has become a proxy for something else:  the performance of Christopher Cox, chairman of the Securities and Exchange Commission.

In a party-line vote, the SEC said companies can reject shareholder efforts to put their own director nominees on corporate ballots.  The move set off a storm of criticism from shareholder activists and Democrats, who responded with their sharpest rebukes yet for Mr. Cox.

In the latest twist in a long-running saga, the chairman voted with the 3-1 majority on what has been dubbed the "nonaccess" proposal, even though Mr. Cox said his ultimate goal is to give shareholders broader proxy rights.

"This action will tar his legacy as an antishareholder chairman and essentially now makes him a lame duck," said Richard Ferlauto, director of corporate governance at labor union American Federation of State, County and Municipal Employees.

The vote ensures the battle will become more intense.  Three institutional shareholders, including AFSCME, announced they had sent proxy-access proposals to financial institutions Bears Stearns Cos. and J.P. Morgan Chase & Co., with a promise more would be filed in the coming weeks.  AFSCME was joined by the New Jersey Division of Investment and the North Carolina treasurer.  (New Jersey didn't sign on to the J.P. Morgan Chase filing.)

A spokesman for J.P. Morgan Chase said the bank has received the proposal and was reviewing it.  A Bear Stearns spokesman didn't return a call for comment.

Mr. Cox promised to work on a new proposal next year, but there are obstacles in his path.  He said some kind of definitive rule was needed to alleviate legal uncertainty before the 2008 proxy season.

"Today is not the end.  I hope all stakeholders will continue to work with us," said Mr. Cox, a Republican.

The battle is important because it cuts to the heart of fundamental questions about how companies should be run.  Shareholders see proxy access as a way to hold directors accountable for the performance of companies and management.

Business groups oppose the concept, charging that it would allow special-interest groups such as unions to promote their own agendas, such as collective bargaining, over the best interests of all shareholders.

In applauding the SEC's move, David Hirschmann, a member of the U.S. Chamber of Commerce, said:  "I'd rather the commission be spending time on any of our 100 recommendations on how to modernize our capital market regulatory structure."

Mr. Cox, a former congressman, voted with two Republican commissioners in favor of the rule, while the lone Democrat on the commission, Annette Nazareth, voted against, calling it "a step backwards."

In a thinly disguised rebuke, she said:  "Ultimately our votes here today are the actions that matter, not our unenforceable aspirations for change."

The tensions over proxy access may tarnish Mr. Cox's image as a self-proclaimed investor advocate.  It also reopens concerns he had so far deflected:  that he would roll back shareholder rights in favor of business interests, as well as questions about the effectiveness of his consensus-based approach to rule making.

The SEC has long said that companies can exclude shareholder proposals related to the election of directors.  Last fall, a federal appeals court called the SEC rule into question, putting the issue before the SEC to clarify.

For the 2007 proxy season, the SEC allowed companies to make the own decisions on whether to put those proposals up for a vote.  This spring, Mr. Cox held three roundtables.

In July, he voted for two diametrically opposite proposals:  the one ultimately passed yesterday and another that allowed shareholders with a 5% stake to put forward proposals.  That bar was criticized as being too high.  The proxy-access proposal in July was supported by Ms. Nazareth and then-SEC Commissioner Roel Campos, who left the agency in September.

The odds of Mr. Cox succeeding with a proxy-access proposal in 2008 are slim.  Two Democratic slots will be open next year -- Ms. Nazareth is leaving and the two Republicans oppose proxy access.  Mr. Cox said yesterday that he was "committed" to seeing that shareholders' rights improve on proxy access.

Mr. Cox said he voted for two proposals in July to stimulate the debate.  "We have made it a habit to listen to one another, to learn from one another and whenever possible to try to square the others' points of view with our own...It may yet lead us to a broader consensus" on shareholder rights, he said.

Mr. Cox defended his desire to clarify the agency's position before the start of the 2008 proxy season, saying it is needed to eliminate uncertainty from two court decisions and likely prospects of litigation that he said would be harmful to shareholders.

The proxy-access proposals filed yesterday by AFSCME appear to do just that.  Mr. Ferlauto of AFSCME said the filings were made precisely to draw attention to the issue in light of the SEC's vote.

Mr. Cox "opened up a can of worms," said Mr. Ferlauto.  He said AFSCME was prepared to litigate if companies decide to exclude them.  "We're making proxy access a fundamental part of every discussion we have with issuers."

Write to Kara Scannell at kara.scannell@wsj.com

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