New proposed rules by the Securities and Exchange Commission could end the virtual stranglehold existing management has over nominating directors of public companies.

On Wednesday, the SEC proposed rules that would make it easier for large shareholders-such as pension or mutual funds-or groups of smaller ones to nominate members to boards of directors. SEC Chairman Mary Schapiro noted that debate over making the proxy rule changes has been going on for several years, but the economic crisis and concerns about corporate accountability prompted the SEC to propose them now.

Currently, it's difficult for many shareholders to effectively-and affordably-nominate board members. In most cases, existing directors nominate a slate of candidates and the company pays to send that proxy information to shareholders. But other shareholders who want to nominees different people must launch a proxy fight and pay to send their choices directly to shareholders, an expensive proposition. Some companies permit shareholders to show up to the annual shareholder meeting where the election occurs and nominate different candidates than the ones on the ballot, but by then it's too late to be meaningful because the proxy votes will have already been cast.
 
Under the SEC proposal, shareholders who qualify to nominate directors at a shareholder meeting would be able to have their nominees included in the company proxy ballot that is sent to all voters. Shareholders would also have the ability to use shareholder proposals to modify the company's nomination procedures or disclosure about elections, so long as those proposals do not conflict with state law or SEC rules.

Shareholders would be eligible to have their nominee included in the proxy materials if:
They own at least 1% of the voting securities of a company with a worldwide market value of $700 million or more or of a registered investment company with net assets of $700 million or more.
They own at least 3% of the voting securities of a company with a worldwide market value of $75 million or more but less than $700 million, or of a registered investment company with net assets of $75 million or more but less than $700 million.
They own at least 5% of the voting securities of a company with a worldwide market value of less than $75 million or of a registered investment company with net assets of less than $75 million.
Shareholders would be able to aggregate holdings to meet applicable thresholds.
Shareholders would be required to have held their shares for at least one year.
Shareholders would be required to sign a statement declaring their intent to continue to own their shares through the annual meeting at which directors are elected.
  Shareholders would be required to certify that they are not holding their stock for the purpose of changing control of the company, or to gain more than minority representation on the board of directors.

The SEC is taking public comments on the rules for 60 days. The SEC will vote on the proposed rules after receiving a recommendation from its staff, which will first review the comments.