WASHINGTON — Federal regulators won't issue rules making it easier for shareholders to nominate directors of public companies until next year, meaning the change sought by investor advocates likely wouldn't occur in time for next spring's corporate-elections season.
The Securities and Exchange Commission, split 3-2 along party lines with Democrats in the majority, proposed the rule change in May as it addressed one of the most contentious issues the agency has dealt with in years. SEC officials had planned to move to final approval sometime this year.
But SEC Chairman Mary Schapiro said in a statement Friday that "it is my hope to finalize the rules early in the new year."
Experts say it wouldn't be possible for companies to prepare for a changeover to new proxy rules in time for next spring's meetings unless the SEC were to act by November. But additional work on the proposal appears to be needed before the SEC commissioners can vote on final action.
"I am committed to bringing final rules before the (commissioners) regarding the ability of shareholders to nominate directors," Schapiro said in the statement. "We have received hundreds of comments that we are reviewing to ensure our rules are fair and appropriate."
Under the current system, dissident investors must wage costly proxy fights and appeal to shareholders at their own expense if they seek new directors on a company's board or a bylaw change.
The delay comes at a time of deepening investor anger in the wake of the financial crisis and recession and tales of extravagant compensation packages for executives — including at big financial firms that received billions in federal bailout funds.
"This is a disappointment," Sen. Charles Schumer, D-N.Y., said in a statement. "We hope that Chairman Schapiro will reconsider or at least avoid a lengthy delay in voting on this important proposal to empower shareholders."
At the same time, Schumer said, legislation he has authored that would make the change in the so-called proxy-access rules is making "good progress" in the Senate as part of the effort to overhaul the system of financial regulation.
Investors and governance advocates have been pushing for years for the change. It is bitterly opposed by business interests.
The U.S. Chamber of Commerce, the biggest business lobbying group, has vocally protested against the SEC proposal. They say it would allow groups — like labor unions — to use the proxy process to promote narrow interests that don't serve the long-term goals of a company or its investors.
The SEC lacks the legal authority to change the proxy rules, and its delay is a recognition that the proposal is "problematic," Tom Quaadman, executive director of the chamber's Center for Capital Markets Competitiveness, said Friday.
"In trying to solve the problems of Wall Street, the SEC could be hamstringing Main Street," he said.
The SEC plan would allow groups that own a certain percentage of a company's stock to put their nominees for director on the annual proxy ballot that is sent to all company shareholders. It would require different minimum levels of stock ownership according to the size of the company: 1 percent for the 700 biggest companies, and 3 or 5 percent for smaller ones. The shareholders would need to have held the stock for at least a year.
The crisis gripping the U.S. and global economies "has led many to raise serious questions and concerns about the accountability and responsiveness of some companies and boards of directors to the interests of shareholders, Schapiro said in May when the proposal was put out for public comment. "The time has come to resolve this debate."