SEC Proposes Rules to Require Universal Proxy Cards and other Changes

Parker Poe Adams & Bernstein LLP
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As SEC Chair Mary Jo White indicated in a June 2015 speech at the Society of Corporate Secretaries and Governance Professionals National Conference in Chicago, the SEC has now proposed new rules to modify the venerable proxy card to require:

  • “universal” proxy cards and certain other procedural changes in contested director elections, and
  • other form and related disclosure changes with regard to both contested and uncontested director elections.

What is a universal proxy card?

A universal proxy card would list both management’s and a shareholder proponent’s director nominees in a contested election and allow shareholders to vote for a mix of those nominees as they see fit. Under the current system, state laws and proxy rules combine to dictate separate proxy ballots from management and proponents, requiring shareholders to vote for either management’s slate or the proponent’s slate. Shareholder activists tend to believe that this stacks the deck in favor of management’s nominees, particularly where the proponent wants to offer less than a full slate, sometimes known as a “short slate.”

The proposed rules regarding universal proxies (contested director elections only).

  • Proxy contestants would be required to provide shareholders with a universal proxy card that includes the names of both management and dissident nominees and allows shareholders to vote by proxy for the combination of nominees of their choice.
  • Rule 14a-4(d) would be amended to enable each proxy contestant to include all director nominees on their universal proxy cards, making it unnecessary for dissidents to round out their partial slates with management’s nominees (eliminating the “short slate” rule).
  • Proxy contestants would be required to notify each other of their respective director candidates within specified timeframes.
  • Dissidents would be required to solicit  shareholders representing at least a majority (but not all) of the voting power of shares entitled to vote on the election of directors.
  • Proxy contestants would be required to refer shareholders to the other party’s proxy statement for information about that party’s nominees and explain that shareholders can access the other party’s proxy statement for free on the Commission’s website.
  • Dissidents would be required to file their definitive proxy statement with the SEC by the later of 25 calendar days prior to the meeting date or five calendar days after the registrant files its definitive proxy statement.
  • Universal proxy cards would be subject to specific presentation and formatting requirements.
  • The proposed changes would not apply to solicitations involving foreign private issuers or companies with reporting obligations only under Section 15(d) of the Exchange Act, which are not subject to the federal proxy rules, or registered investment companies or business development companies.

Proposed rules regarding other proxy card amendments (all director elections).

  • In a director election governed by a majority voting standard where a vote against a nominee would have legal effect under state law, proxy cards would be required to include an “against” voting option and an “abstain” voting option.
  • In a director election governed by a plurality voting standard, proxy statements would be required to contain disclosure about the effect of a “withhold” vote in an election of directors.

Of course, the rule is still in the proposal stage, and the SEC has implemented a 60-day comment period. It remains to be seen whether final rules will be in effect for the spring 2017 proxy season, though the tight timing and probability of vigorous debate makes it unlikely.

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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