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General elective

12 February 2015 By Reynolds Holding

General Electric has cracked open the boardroom door for shareholders. The $250 billion conglomerate will allow investors who hold more than 3 percent of its stock for at least three years to nominate up to a fifth of its board directors. Few owners are big enough to qualify, of course, but at smaller firms the idea could bring big changes.

The U.S. Securities and Exchange Commission has already gotten the message. In 2010, it adopted a so-called proxy access rule requiring all publicly traded companies to grant shareholders essentially the same rights as provided in GE’s plan. A year later, though, a federal appeals court struck down the measure, saying the regulator acted arbitrarily and capriciously in not assessing the rule’s economic effects.

It wasn’t a complete loss for investors, who could still propose a bylaw amendment for putting their nominees on a company’s slate. In fact, a GE shareholder offered just such a provision for the 2015 proxy.

The company last week preempted any vote on the issue with its own bylaw change. The question is how much it will help. Institutional investors like Vanguard and BlackRock are about the only shareholders with GE stakes above the 3 percent threshold. And on average these days, stocks are sold much sooner than three years after they are bought.

The provision allowing up to 20 shareholders to band together to meet the threshold should help. And at companies with market caps far lower than GE’s, similar rules could give some investors real leverage to get their nominees on the board.

The sticking point is persuading boards, one by one, to change their bylaws. Last year, shareholders at 17 companies considered proxy access proposals, and only six of the measures received a majority vote, according to Institutional Shareholder Services. GE, Verizon VZ.N and Hewlett-Packard are among the very few corporations to adopt such amendments in recent years.

That leaves the SEC, which has yet to commit publicly to a revival of its proxy access rule. GE’s move may be just the nudge toward good governance it needs.


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