(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Shareholder Access to Proxy Allowed Under SEC Proposal

For the first time in its history, the SEC proposes to give shareholders direct access to the proxy process by requiring companies, including investment companies, to include in their proxy materials the names of shareholder nominees for director, as well as disclosure about those nominees. The requirement would arise in cases where state law establishes the right of a shareholder to nominate a candidate for such an election and one or more specified events has occurred providing evidence of shareholder dissatisfaction with the effectiveness of the company's proxy process. Currently, shareholders are provided proxies allowing a vote only on company-nominated candidates and disclosure in company proxy material is limited to those candidates.

According to SEC Chairman William H. Donaldson, the proposal strikes an "important balance" between shareholders who seek a more active voice in the proxy process and those who have legitimate concerns about the impact of those proposals on the oversight, management and operation of public companies. Thus, while the proposal would require shareholder nominees to be included in proxy materials, the requirement would be limited to nominees of shareholders who demonstrate their significant, long-term interest in the company, and who are not seeking control of the board of directors. Also, the proposal would apply only to those companies where there is evidence of ineffectiveness in the proxy process.

Commissioner Paul S. Atkins emphasized that the proposal is not geared towards reshaping the proxy contest landscape or, more importantly, to challenging the fundamental concept that managers, and not stockholders, manage the affairs of the company. Rather, the proposed reform addresses problem companies that are obviously not appropriately responding to the requests of their owners.

In the view of the Business Roundtable, far from enhancing corporate governance, the proposal presents the possibility of special interest groups "hijacking" the director election process. Preliminary research by the roundtable indicates that the SEC's proposal goes far beyond a small number of unresponsive companies, and will impact most, if not all, public companies regardless of their corporate governance practices or their responsiveness to shareholders.

¨ The proposing release will be published in a forthcoming REPORT .