Senate Majority Leader Harry Reid of Nevada looks at signed petition papers on a table in support of a strong financial reform, during a news conference discussing Wall Street accountability legislation on Wednesday. - ASSOCIATED PRESS

Financial overhaul could bring change to boardroom

WASHINGTON — Lost in the partisan bickering over legislation to revamp the regulation of financial markets is an important provision that goes beyond finance and brings a potentially radical change to how corporate boards of directors are selected.

Supporters think the measure the Senate passed late Thursday will bring boardroom democracy, but detractors call it a gift to powerful unions and will try to kill the provision when congressional negotiators narrow differences between the Senate bill and the House of Representatives' version.

The issue is proxy access, and it involves the mechanisms by which corporations go about governing themselves through the selection of their directors. Boards are supposed to act as a check on management, but in recent years they've come under intense criticism for being inattentive amid the nation's financial crisis.

Corporate boards drew scrutiny after the brutal collapse of energy giant Enron Corp in 2001. The near-collapse of the financial markets in September 2008 again raised questions about how involved the boards of Wall Street firms and ratings agencies were when risk management went missing.

To answer this question, President Barack Obama called for changing the way boards are selected as part of the financial overhaul process. Under legislation the House passed in December, shareholders would gain new powers to review and potentially curb executive pay, reduce the incentive to chase short-term profits that are unsustainable.

The Senate legislation passed late Thursday goes further, however, granting the Securities and Exchange Commission authority to dictate how corporate boards are selected.

Under a pending SEC proposal, shareholders or groups of them would have to have a 5 percent stake in companies whose market value is below $75 million, 3 percent for companies whose value is between $75 million and $700 million and 1 percent for companies valued above $700 million to nominate a shareholder.

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