Several news outlets have recently reported that the SEC is circulating a plan to allow 5% shareholders to propose bylaw amendments aimed at nominating directors on the company’s proxy ballot. The goal is direct proxy-ballot access by shareholders. How such a proposal would work is unclear. Presumably, a 5% holder would propose a bylaw amendment that would allow shareholders of an unknown percentage to nominate candidates on the company’s proxy ballot. If the bylaw amendment were approved by a majority of shareholders, direct shareholder access to the company’s ballot would be achieved.

Proxy access by shareholders is always controversial, especially when it comes to nominating directors. Management tends to argue against such access in the name of stability and over concerns that the board will be hijacked by a small percentage of active shareholders. Proponents counter that a company’s owners deserve as much control as practicable.