The vote by the SEC at a public meeting Wednesday was 3-2, with the two Republican commissioners opposed. The proposal drew protests from the nation's biggest business lobby.

It will allow groups that own at least 3 percent of a company's stock to put their nominees for board seats on the annual proxy ballot sent to all shareholders.

Getting candidates on the board gives supporters a better shot at influencing company policy. It will be in place in time for next spring's corporate elections season.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

WASHINGTON (AP) - The Securities and Exchange Commission moved Wednesday toward making it easier for shareholders to nominate directors of public companies, over the objections of a commission member who warned the change would likely be overturned by a court.

The action expected from the SEC has been sought by investor advocates but already has sparked protest from the nation's biggest business lobby. It will allow groups that own at least 3 percent of a company's stock to put their nominees for board seats on the annual proxy ballot sent to all shareholders.

Getting their candidates on the board gives the shareholders a better shot at influencing company policy. It likely will be in place in time for next spring's corporate elections season - and observers say it may be used to target boards of some companies.

SEC Chairman Mary Schapiro said at a public meeting the change is "a matter of fairness and accountability."

But Commissioner Kathleen Casey, a Republican, called it "so fundamentally and fatally flawed that it will have great difficulty surviving judicial scrutiny." The new rules "are likely to result in significant harm" to the economy and the U.S. markets' competitiveness, Casey said.

A U.S. Chamber of Commerce official called it "a giant step backwards for average investors" and said the organization will fight it "using every method available."

With more than 600 billion shares being voted each year, the proxy system is a key element of corporate governance. Under the current system, dissident investors - regardless of how much company stock they hold - 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 change comes at a time when investors, hurt by the financial crisis and recession, are angry about risky behavior by corporations looking for short-term profit gains and extravagant compensation packages for executives.

The issue has ignited fierce debate: Schapiro has said it was one of the most contentious issues ever addressed by the market watchdog agency. The SEC itself was split 3-2 along party lines when it voted in May 2009 to open the proposal to public comment, and the bitter division was evident at Wednesday's public meeting.

David Hirschmann, president and CEO of the Chamber's Center for Capital Markets Competitiveness, said "using the proxy process to give labor-union pension funds and others greater leverage to try to ram through their agenda makes no sense." His statement didn't say specifically whether the organization would mount a legal challenge to the new rules.

But Amy Borrus, deputy director of the Council of Institutional Investors, a group representing public pension funds, said proxy access "will make boards more responsive to shareowners, and more careful about how they oversee their companies and management in particular."

The new rules are likely to be used "only in egregious cases where boards have ignored shareowners' concerns," Borrus said. Yet the fact that the tool is there could make directors more responsive, she added.

Under the new rules, the shareholders will need to have held the minimum level of stock for at least three years. In addition, shareholders won't able to borrow stock to meet the minimum 3 percent level.

Critics of the changes have said they would impose a "federal proxy regime" on state laws and that the SEC lacked the legal authority to make them. That authority came in the landmark financial overhaul legislation that was signed into law last month.

Also under the new law, shareholders will be able to weigh in on pay packages for top executives. Nonbinding votes on executive pay will be held at least once every three years.

Until now, the SEC hadn't made a thorough review of the proxy system in 30 years. In that time, there have been numerous changes in technology, shareholder demographics and the structure of share holdings.