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Advocates Applaud NYSE's Stricter Rules

Some say more reforms are needed to rein in executive pay and make corporate boards pay attention to investors.

June 25, 2003|Kathy M. Kristof | Times Staff Writer

Upcoming stock exchange rules that will give shareholders more say over some aspects of executive pay should make corporate boards more responsive to investor concerns, experts said Tuesday.

"This is long-overdue reform that could be very powerful," said Ann Yerger, deputy director of the Council of Institutional Investors in Washington. "It should increase accountability to shareholders."

But more reforms are needed to rein in executive pay and control corporate boards run amok, several shareholder advocates said.

"This is a step, not a destination," Scott Klinger, co-director of the responsible wealth project at United for a Fair Economy in Boston, said of the rules.

The New York Stock Exchange sent a notice to members Friday stating that new corporate governance rules proposed in October for NYSE-listed companies were expected to win approval by securities regulators and go into effect at the end of this month.

Those rules require the 2,700-plus companies whose shares trade on the NYSE to submit almost all compensation plans involving company stock or stock options to shareholder vote. The only exceptions would be for stock plans that are made available to all shareholders, such as dividend reinvestment plans.

The new NYSE rules also would bar brokers from voting on equity plans on behalf of their customers without getting the customer's approval.

The Nasdaq Stock Market is proposing similar rules for its listed companies. Rules for both exchanges must be approved by the Securities and Exchange Commission.

The new listing requirements are aimed at stopping companies from implementing employee stock-option plans that would greatly dilute the interests of existing shareholders without getting shareholder approval first.

In the last several years, companies have been able to issue hundreds of millions of new shares without shareholder approval. Some controversial plans that required shareholder approval were narrowly passed thanks to votes from brokers -- which were almost always cast in favor of management, said Paul Hodgson, senior research associate at the Corporate Library, a Web site that focuses on corporate governance issues.

Companies said Tuesday that they didn't expect to have any trouble implementing the rules, largely because they had been so long in coming.

"We have already put a lot of these policies into effect," said Jan Sieving, public affairs manager at Occidental Petroleum Corp. in Los Angeles. "We don't anticipate having to make a lot of changes to our governance policies, except maybe a few minor tweaks."

Still, industry experts contended that the rules signal a turning point for shareholder rights.

"The NYSE rules are significant as much for what they say about where the world is going as for what they do," said Susan Shultz, president of SSA Executive Search International in Phoenix. "This is part of a very substantial trend toward empowerment of shareholders."

This summer, the SEC will begin requiring mutual funds to track how they have voted on shareholder proposals -- and pass that information on to fund owners. That could create greater accountability on the part of big institutional shareholders that have sometimes rubber-stamped management proposals, Hodgson said.

The SEC also just completed a public comment period to consider whether shareholders should be able to directly nominate candidates for corporate boards.

Groups including the AFL-CIO, public pensions and traditional shareholder advocates urged the SEC to allow that change, which is generally opposed by businesses.

"I really think this is a sea change," Shultz said.

The Times' recent news package on pay received by Southern California executives is at www .latimes.com/execpay.

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