In late July, the SEC’s Investor Advisory Committee issued a recommendation that the SEC ”explore relaxing the ‘bona fide nominee’ rule embodied in Rule 14a-4(d)(1) . . . to provide proxy contestants with the option (but not the obligation) to use Universal Ballots in connection with short slate director nominations (in other words, where the candidates nominated by shareholders would, if elected, constitute a minority of the board of directors).” The Committee’s recommendation didn’t attract a great deal of attention, perhaps because the Committee’s recommendations are little regarded or perhaps because they were issued in the midst of the dies caniculares. Whatever the reasons for the quiet response, the recommendation may have legs because within days of adoption by the Committee, DealLawyers.com reported that the Council of Institutional Investors (CII) is considering changes to its ”governance policies to support the use of a universal ballot in proxy fights”.
The Committee’s use of the term “Universal Proxy Ballot” is both infelicitous and bemusing. The recommendation doesn’t relate to the form of ballots used at stockholder meetings, a matter governed by state law. Rather, the proposal relates to the SEC’s rule governing the form of proxies. A ballot is not a proxy, a ballot is something that a proxyholder may use to vote shares pursuant to a proxy.
Here’s how the Committee describes the problem:
Shareholders in attendance at meetings, particularly in proxy contests, have the ability to receive a legal ballot that allows them to pick and choose among all of the candidates who are duly nominated. Shareholders who are not in attendance do not have that ability and typically can only choose from among nominees that appear on management’s or a dissident’s ballot – but not both.
In 2009, Pershing Square Capital Management, L.P. made an issue of universal proxies in its fight with Target Corporation. See Letter from Roy J. Katzovicz dated May 26, 2009. In coincidences worthy of Sophocles, it turns out that not only is Mr. Katzovicz a member of the Investor Advisory Committee, the Executive Director of the CII is as well. In addition, both CalPERS and CalSTRS have representatives on the Committee and the Board of the CII.