In the autopsy of last year's financial meltdown, one of the principal culprits to have emerged is the extraordinarily lax oversight that the boards of some public corporations have exercised over management. On September 17, 2009,
Mary Schapiro, the new Chairman of the Securities Exchange Commission, gave a speech, "
Address to Transatlantic Corporate Governance Dialogue--2009 Conference," announcing the SEC's plan to ensure that this practice would come to an end.
Schapiro lambasted boards of directors for failing to reign in management decisions about risk, and suggested that many boards appear to have misunderstand the gravity of risks taken. The new Chairman stated that "[s]enior management took higher returns at face value without questioning why such higher returns were possible for supposedly safe investments and strategies."
The new Chairman suggests that regulators should ensure that investors in publicly held companies have the opportunity to remove directors who turn a blind eye to irresponsible management. She outlined a proposal by the SEC to remove obstacles to shareholders' ability to nominate candidates for the boards of directors of the companies that they own.
Under the proposed rules, shareholders who otherwise are provided the opportunity to nominate directors at a shareholder meeting would be - subject to certain eligibility and procedural requirements - able to have their nominees included in the company proxy that is sent to all voters.
You can expect a fight. This comment letter ( PDF) in support of the proposal was filed by Labaton Sucharow and other firms representing institutional investors.