The SEC Proposes Rule Amendments to Facilitate Rights of Shareholders to Nominate Directors


In response to what it called “one of the most serious economic crises of the past century,” the Securities and Exchange Commission (the “SEC”) has recognized the need to improve the accountability of boards of directors to shareholders and proposed new proxy rules to improve shareholders’ oversight of management and decisions on compensation structures. Under current proxy rules, a shareholder seeking to nominate director candidates for election at a shareholders’ meeting must engage in a proxy contest at such shareholder’s own expense—an extremely costly and often difficult process. In response to this concern, on May 20, 2009, the SEC voted to propose rule amendments giving shareholders a right to include their director nominees in the company proxy that is sent to all voters, thereby exercising what the SEC called their “fundamental right” to nominate directors. In addition, the proposed rule amendments seek to increase the ability of shareholders to modify nomination procedures and other director nomination disclosure provisions. Because the SEC has not yet published the related final rules, this Securities Law Update is based on the approved rule proposal and the information provided at the SEC’s open meeting.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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