SEC Allows Proxy Voting for Preferred Combination of Board Candidates in Contested Elections – Corporate / Commercial Law
United States: SEC Allows Proxy Voting For Preferred Combination Of Board Candidates In Contested Elections
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The SEC amended federal proxy rules to require (i) parties to a contested election to use universal proxy cards that include all nominees for directors at a shareholder meeting and (ii) options improved disclosure and voting in all director elections. Shareholders will now have the option of voting for their preferred combination of board nominees by proxy, which was previously an option only for in-person voting. With the exception of elections involving registered investment companies and business development companies, the amended rules will apply to all non-exempt solicitations for contested elections.
The SEC said it views the universal proxy card requirement as “the most efficient way” to ensure shareholders are able to elect directors in a manner consistent with in-person voting rights, and that it “will better align federal proxy rules with a shareholder’s ability to vote in person.” Once in effect, the final rule will require dissenting shareholders and registrants:
- provide shareholders with a proxy card that includes the names of all registered and dissenting candidates;
- inform each other of the names of their candidates;
- determine for dissidents a deadline for filing their proxy (25 calendar days before the shareholders’ meeting or five calendar days after the filing of the declarant, whichever is later);
- establish a minimum solicitation requirement for dissidents (at least 67% of the voting rights of the voting shares); and
- establish presentation and formatting requirements for universal proxy cards ensuring that “candidates are presented in a clear and neutral manner”.
The final rule also expands “good faith nominee” to include a person who agrees to be named in “any proxy for the next meeting of shareholders of a registrant for election of directors”. In addition, the SEC has adopted new disclosure requirements regarding voting standards and certain voting options for all director elections (regardless of the contested election status).
The new requirements for universal proxy cards in contested director elections and voting options in all director elections will be required for elections held after August 31, 2022.
SEC Commissioners Allison Herren Lee and Caroline A. Crenshaw have issued statements of full support for rule making. SEC commissioner Elad L. Roisman voted in favor of the rule, but said he wanted it expanded to include funds. Mr Roisman also expressed some reservations, noting that the changes “will put even more power in the hands of voting consulting firms.” SEC Chairman Gary Gensler endorsed the measure, saying it “will put investors voting in person and by proxy on an equal footing,” which he said was important to “shareholder democracy. “.
SEC Commissioner Hester M. Peirce voted against rule making, saying that while she is in favor of universal proxy voting, she remains concerned that this version “would facilitate changes in the ‘business that advance special interests rather than enhancing the value of the business. Ms Peirce added that “the price of entry into the company’s proxy card under this rule is low” and expressed concern that the rule “does not condition access to the card. of power of attorney of the company to a demonstrated commitment to the company “.
The universal proxy card has gained momentum in recent years. The new SEC rule will give investors the ability to split their votes between candidates nominated by management and those nominated by activist investors.
- SEC Final Rule: Universal Proxy
- SEC Fact Sheet: Universal Proxy Rules for Director Elections
- SEC Press Release: SEC Adopts New Rules for Universal Proxy Cards in Contested Director Elections
- Statement by Commissioner Allison Herren Lee on final rule making
- Statement by Commissioner Elad L. Roisman on the final regulation
- Statement by Commissioner Caroline A. Crenshaw on final rule making
- Statement by Commissioner Hester M. Peirce on final rule making
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