SEC Proposes Amendments to Require Use of Universal Proxy Cards

 

On October 26, 2016, the SEC voted to propose amendments to the proxy rules to require parties in a contested election to use universal proxy cards that would include the names of all board of director nominees.  This post briefly summarizes the SEC’s proposal.  For users of Bouchoux & Chung Business Organizations in Focus, this post relates to discussion of proxy regulation on pp. 820-831  of the text.

Background:  As it stands today, when there is a contested election for directors, corporations and shareholder activists putting forth dissident candidates issue separate proxy-voting cards, each with their own nominees. Shareholders voting by proxy must vote one card or the other:  They cannot vote for a combination of nominees from both cards. This means that investors voting by proxy have no practical ability to vote for their preferred combination of management and dissident nominees.  Only shareholders voting in person at annual meetings have cards with all nominees.

Proposed Rule:  Under the proposed rules, parties in a contested election would be required to use universal proxy cards that would include the names of all board of director nominees.  The proposed rules would require management and dissidents to provide each other with notice of the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents, and prescribe presentation and formatting requirements for universal proxy cards.  The purpose of the proposed rule is to give shareholders the ability to vote by proxy for their preferred combination of board candidates, similar to voting in person.  To further support shareholder voting in director elections, the Commission also voted to propose amendments to the proxy rules to ensure that proxy cards specify the applicable shareholder voting options in all director elections and require that proxy statements disclose the effect of a shareholder’s election to withhold its vote, according to the SEC press release.

The proposed rules would apply to all non-exempt solicitations for contested elections other than those involving registered investment companies and business development companies.  The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.  The SEC’s press release is available at https://www.sec.gov/news/pressrelease/2016-225.html.

Christine Chung

Christine Chung

This blog is edited by Christine Sgarlata Chung, Associate Professor of Law at Albany Law School, and Co-Director, Institute for Financial Market Regulation. In addition to her work in academia, Professor Chung previously served as a Branch Chief in the Enforcement Division of the Securities and Exchange Commission and as a partner at a large Boston-based law firm.
Christine Chung