The New York Stock Exchange (NYSE) recently filed a proposal with the Securities and Exchange Commission (SEC) to delete Rule 312.07 of its listing standards. The historically controversial shareholder voting rule currently defines "shareholder approval" as a majority of the votes cast on a matter, provided that the total votes cast on the matter represent over 50% in interest of all shares entitled to vote on the proposal. The voting standard applies to disclosures under NYSE Rules 303A-08 and 312.03.
Rule 303A-08 requires shareholder approval of equity compensation plans and material amendments to such plans. Rule 312.03(c) requires shareholder approval of the issuance or sale of common stock if (1) the common stock has, or will have, voting power equal to or greater than 20% of the voting power outstanding before the issuance of such stock, or (2) the number of shares of common stock to be issued is or will be equal to or greater than 20% of the number of shares of common stock outstandingbefore the issuance of the common stock.
Rule 312.07 has been problematic because it treats abstentions and broker non-votes differently for quorum purposes than may be required under the listed company's bylaws and state corporate laws. Most state laws do not count abstentions and broker non-votes as votes against the proposal. Under most state laws, broker non-votes may be considered present for quorum purposes but not treated as votes for or against the proposal and not counted as shares entitled to vote. Thus, a smaller number of "for" votes will be required in order to obtain a majority under state law than would be required under the NYSE rule. NYSE-listed companies have struggled to comply with the dual-voting standard when crafting proxy disclosure language regarding voting results for equity compensation plans and additional stock issuance. The NASDAQ Stock Market rules do not contain any similar requirement.
If approved, the rule change would begin to impact prospective disclosure regarding applicable proposals for shareholder votes cast during the second quarter of 2013.