Sometime this summer, Harvey J. Goldschmid will complete his term as Commissioner of the Securities and Exchange Commission, and will return to Columbia University School of Law, where he serves as Dwight Professor of Law. As one of two reigning Democrats along with Roel Campos, Goldschmid has frequently lined up along with chairman William Donaldson. He has been especially vocal about the SEC’s controversial proxy access proposal, which lays out a two-step process under which shareholders could nominate directors to a company’s board, under certain conditions. The potential rule, however, is seemingly on hold in the face of strong, vociferous opposition from a large number of pro-business groups.

In an attempt to rekindle the proposal, Goldschmid recently trotted out a simplified, alternative plan during a speech to the Council of Institutional Investors, whereby one year after a majority of shareholders withhold their votes for any board member, investors who hold at least 5 percent of a company's total shares would be able to propose their own slate of nominees for a minority of seats on a board.

Goldschmid recently took time out from his busy schedule to discuss with Stephen Taub the future of proxy access, alternative proposals and other key issues before the Commission.

Have you set a date for when you plan to leave?

I begin teaching on Sept. 6. In the best of worlds, I would leave in May or June so I could have some down time. But, realistically, given all that is before the Commission, July 1 is the earliest date that I will be able to leave.

Why are you waiting until then?

There is much to do and a delicate balance in the way the Commission is currently structured.

Are there specific issues you want to see resolved before you leave?

Yes. I’m interested in a number of major areas. For example, 1933 Act reforms—largely how new issues are sold. We can make communication far more open and effective, and, in general, lower costs and increase efficiency. Hopefully, we’ll pass the proposed rules before I go. I am also interested in certain regulatory provisions for the SROs and certain mutual funds matters.

What specific mutual funds matters?

Disclosure at the point of sale and in trade confirmations. We are also working on proposals regarding soft dollars and 12b-1 fees.

What about proxy access? I know this is an important issue to you. Do you think it will be passed while you are still with the Commission?

I’m hopeful the Commission will act sometime before I leave this summer. If it does not, it will happen in the next decade, and, I suspect, in a much tougher form.

Why in a much tougher form?

The SEC proposal that was offered in October 2003 is a very moderate reform.

Explain your alternative proposal articulated to the CII.

It’s an offshoot of what was proposed in October 2003. I would move to 50.1 percent withheld votes—not counting broker votes—from 35 percent. The idea has always been that the largest number of shareholders would get together and nominate one, two or three directors—depending on the size of a board—at a second annual meeting.

What kind of reception did this proposal get inside the SEC?

It’s something we’re talking about. Another suggestion that I alluded to is the possibility of an effective cure.

So, how do you get this to work?

As a cure, the incumbent directors can sit down with the largest shareholder group and agree on a new director; if they do so, there would be no need for proxy access.

Are there any other proposals kicking around?

Another cure proposal is to call a special meeting within 90 days of the 50.1 percent withheld vote to elect a new director.

Are these alternatives likely to be passed?

They certainly would be considered if the Commission decides to move ahead on proxy access.

What are the critics concerned about?

I just don’t know. I have not heard a concern that I consider realistic. The Business Roundtable, unfortunately, has taken a very hard line on proxy access.

But, they seem to be warming up to other proposals.

Yes. In the Reg. FD area, the Roundtable has separated itself from the U.S. Chamber of Commerce. It’s not in the best interest of the Roundtable to be seen as continuously unconstructive.

Their argument is that with Sarbanes-Oxley, there have been enough changes and that boards know what’s better.

Boards that are more independent, acting under Sarbanes-Oxley, will most often do what is needed for shareholders. But, what happens when there is a weak management and a weak board? What do you do then? Sarbanes-Oxley doesn’t make it less important to give shareholders proxy access in circumstances where managers are ineffective and the board allows them to remain on a painful or disastrous course.

What do you say to critics who claim that, under proxy access, the special interests will hijack boards of directors?

That’s just propaganda. There is no touch of reality in such a claim. You’re not going to get shareholders in the real world to oppose incumbents at two annual meetings and then elect obstructionists. Shareholders will only vote for directors who will bring a drive for efficiency and profitability to the board.

What do you think of the large number of shareholder proposals calling for majority voting of directors instead of a plurality?

It’s fundamentally a good idea, but only as a veto device. It doesn’t give shareholders an opportunity to get someone good on the board. Shareholder access is what makes the SEC’s access proposal so important.

What do you think of the SEC’s decision to push back the implementation of Section 404 yet again? Is the SEC going soft on 404?

No. The trick here is to just use good sense and judgment. Section 404 is the only significant cost item in Sarbanes-Oxley. We wanted to give accounting firms and issuers enough time to deal with it. We must continue to be sensitive to Section 404’s cost—especially to eliminate unnecessary cost—as well as its great benefit. That’s why we held a special roundtable in April.

What about the delay in expensing options?

We hated to do it. But, it makes sense. Implementing it in the third quarter would have created problems with disclosure in the MD&A. We put off the compliance date, but not the effective date. Beginning the process in the first quarter for all firms makes sense on the merits. Also, accounting firms and issuers will now have enough time to prepare.

As you leave the SEC, what accomplishments are you most proud of?

Three basic areas. First, SEC rulemakings effectively implementing and building on Sarbanes-Oxley, and second, the enhanced rigor and seriousness of the SEC enforcement program. Finally, what we’ve done in the mutual fund, hedge fund, and SRO areas makes me proud.

What’s your take on NY Attorney General Eliot Spitzer? Did he undermine the SEC?

I am a great fan of Eliot Spitzer. He’s done a terrific job.

Thank you very much and good luck.

My pleasure.

Compliance Week regularly profiles corporate executives responsible for governance, compliance, ethics and risk. Click here for recent Q&As. If you would like to be considered for a future Q&A, or if you would like to nominate a public company executive for a Q&A, please email Matt Kelly.

Click here for upcoming Webcasts with compliance officers.