BILL ANALYSIS
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THIRD READING
Bill No: AJR 79
Author: Chu (D), et al
Amended: 5/20/04 in Assembly
Vote: 21
WITHOUT REFERENCE TO COMMITTEE OR FILE
ASSEMBLY FLOOR : 67-7, 5/20/04 - See last page for vote
SUBJECT : Corporate elections
SOURCE : Secretary of State
DIGEST : This resolution urges the United States
Securities and Exchange Commission to implement its
proposed shareholder participation rules in order to
address the need for reform in corporate transparency and
give shareholders access to proxy.
ANALYSIS : Existing law establishes General Corporations
Law which sets certain rules for corporate governance,
however, it does not specifically establish procedures or
requirements for direct corporate elections.
This resolution makes findings and declarations that:
1. The Legislature has noted with growing concern the
accounting scandals of major corporations including
Enron, WorldCom, and HealthSouth, and their sustained
negative effect on institutional and individual
investors and on California's economy.
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2. The cumulative effect of instances of fraud and
wrongdoing has been to inflict avoidable investor losses
totaling in the billions of dollars and to significantly
damage investor confidence in California and elsewhere.
3. The events of fraud and accounting scandals have pointed
to an urgent need for greater corporate accountability,
and specifically for corporate boards to engage in
greater oversight over corporate operations, thereby
fulfilling their traditional role as independent
fiduciaries rather than passive arms of management.
4. One way to achieve greater accountability on the part of
corporate boards is to increase shareholder access to
proxy, defined as the ability of shareholders to
nominate a candidate or slate of candidates for election
to the board at annual company meetings held for that
purpose.
5. Federal law controls many aspects of corporate election
procedures, and under current federal law and Securities
and Exchange Commission (SEC) rules, shareholder access
to proxy is not required.
6. The SEC has been working for several months on proposed
reforms to address the crisis of corporate
accountability and investor confidence. SEC in part
devised a means of providing within the framework of the
rules of the SEC a mechanism for greater shareholder
access to proxy and, has proposed a rule to improve the
ability of shareholders to participate in the nomination
and election of directors of corporate boards.
This resolution states that the Legislature urges the SEC
to implement the proposed shareholder participation rules
at the earliest possible date to answer the call for badly
needed reform, to improve corporate accountability, to
restore investor confidence and to provide shareholders
with increased access to proxy to promote greater board
oversight of corporate operations and responsiveness to
shareholder concerns.
Comments
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Recently, SEC proposed Exchange Act Rule 14a-11 for
Security Holder Director Nominations that requires, under
certain circumstances, companies to include in their proxy
materials security holder nominees for election as
director. Under the proposed rules, if 35 percent of
shareholders withhold a vote against directors, a process
is triggered that would give a large investor or group of
shareholders the right to place a director on a company's
proxy.
According to SEC, "These proposed rules are intended to
improve disclosure to security holders to enhance their
ability to participate meaningfully in the proxy process
for the nomination and election of directors."
The author's office would like these rules adopted because
"shareholder access to proxy statements is an important
incentive for improving director performance and
accountability to the shareholders that elect them."
The United States Chamber of Commerce opposes the proposed
rules, arguing that regulators should "give all of the new
rules enacted over the past two years, such as Sarbanes
Oxley Act of 2002, more time to work before instituting new
reforms..." The national Business Roundtable argues that
certain shareholders might put forward an agenda that does
not serve the interest of all investors.
However, Secretary of State Kevin Shelley, this bill's
sponsor, and the author argue that "the best way of
achieving meaningful reform of corporate elections and
providing shareholders with greater access to the
nomination process for directors is to support the passage
of the SEC's Exchange Act Rules for Security Holder
Director Nominations."
FISCAL EFFECT : Fiscal Com.: No
ASSEMBLY FLOOR :
AYES: Aghazarian, Bates, Benoit, Berg, Bermudez, Bogh,
Calderon, Canciamilla, Chan, Chavez, Chu, Cogdill, Cohn,
Corbett, Correa, Cox, Daucher, Diaz, Dutra, Dutton,
Dymally, Firebaugh, Frommer, Garcia, Goldberg, Hancock,
Harman, Jerome Horton, Shirley Horton, Houston, Jackson,
AJR 79
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Kehoe, Koretz, La Malfa, Laird, Leno, Levine, Lieber,
Liu, Longville, Lowenthal, Maldonado, Matthews, Montanez,
Mullin, Nakano, Nation, Negrete McLeod, Oropeza, Parra,
Pavley, Plescia, Reyes, Ridley-Thomas, Runner, Salinas,
Samuelian, Simitian, Spitzer, Steinberg, Vargas, Wesson,
Wiggins, Wolk, Wyland, Yee, Nunez
NOES: Campbell, Haynes, Leslie, Mountjoy, Nakanishi,
Pacheco, Richman
NO VOTE RECORDED: Keene, La Suer, Maddox, Maze, McCarthy,
Strickland
NC:mel 6/3/04 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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