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2012 was the first year that shareholders could take advantage of SEC rules that allow shareholders to submit proxy access proposals to adopt proxy access provisions in a company’s bylaws. Prior to September 2011, Rule 14a-8(i)(8) allowed a company to exclude a shareholder proposal that related to the company’s director election/nomination procedures. The SEC proposed a mandatory proxy access rule that would have allowed long-term 3% holders to include director nominees in the company’s proxy, but the rule was vacated by the D.C. Circuit Court in July 2011. Only new Rule 14a-8(i)(8) survived, which means shareholders that want proxy access must first gain support for bylaws amendments that would allow such access.
This company-by-company approach to proxy access has some commentators predicting that a market standard will develop over time for what is a reasonable standard for proxy access, including what percentage of shares must a shareholder own (and for how long) before being able to include director nominees in the company’s proxy materials.
In March 2012, the SEC issued several no-action letters resolving requests to exclude proxy access proposals on technical grounds. The SEC has since clarified in Staff Legal Bulletin 14G when shareholder proposals, including proxy access proposals, may be excluded on technical grounds. Presumably, shareholders seeking proxy access will use successful proposals from 2012, along with this recent SEC guidance, to draft proposals for 2013 that are less likely to be excluded for technical reasons and less likely to be rejected by shareholders for substantive reasons.
Institutional Shareholder Services Inc. ("ISS") issued its 2013 Draft Policies for review and comment. These draft policies are intended to update ISS’ benchmark proxy voting guidelines. The draft policies that have been provided for comment include the following topics:
- Board Response to Majority-Supported Shareholder Proposals (U.S.);
- Director Over-boarding (Hong Kong & Singapore);
- Board Tenure Exceeding Nine Years (Hong Kong & Singapore);
- Board Nominee Disclosure (Global);
- Management Say-on-Pay Proposals (U.S.);
- Say on Golden Parachute Proposals (U.S.);
- Pay for Performance (Canada); and
- Environmental and Social Non-Financial Performance Compensation-Related Proposals (U.S.).
All comments to the 2013 Draft Policies should be sent to ISS no later than October 31, 2012.…
On Wednesday, March 7, 2012, the SEC’s Division of Corporate Finance responded to a series of No-Action Requests regarding issues under Exchange Act Rule 14a-8 (under which eligible shareholders are permitted to require companies to include shareholder proposals regarding proxy access procedures in company proxy materials). In these series of letters, CorpFin: (1) stated that there would be no action for omitting portions of proposals that contain something "separate and distinct" from shareholder nominations; (2) stated that there would be no action for omitting proposals that are vague and indefinite; (3) rejected the argument by certain corporations that a proposal was false and misleading; and (4) rejecting the argument that a proposal to amend the by-laws had already been substantially implemented.…
On Tuesday, September 6, the SEC announced that it is not seeking rehearing of the decision by the D.C. Circuit Court of Appeals invalidating Exchange Act Rule 14a-11. That Rule, which was previously discussed here, allowed 3% shareholders (or larger) to use the company proxy statement to nominate directors. As discussed here, on Friday, July 22, 2011, the D.C. Circuit Court of Appeals issued an Opinion vacating the rule. Business Roundtable v. SEC, No. 10-1305, slip op. (D.C. Cir. Jul. 22, 2011).…
On Friday, July 22, 2011, the D.C. Circuit Court of Appeals issued an Opinion vacating Exchange Act Rule 14a-11. Business Roundtable v. SEC, No. 10-1305, slip op. (D.C. Cir. Jul. 22, 2011). The Rule, which was previously discussed here, allowed 3% shareholders (or larger) to use the company proxy statement to nominate directors.…
Earlier this week, the SEC finalized a new proxy access rule for 3% shareholders (or larger) that was first proposed over a year ago. Proxy access refers to the right of a shareholder to use the company’s proxy statement to solicit votes for a nominee for the board of directors. Prior to the new rule, a shareholder that wanted to solicit votes for a nominee had to prepare its own proxy statement at significant cost. Now 3% shareholders (or larger) can use the company proxy statement to nominate directors.
In general, if a shareholder (or group of shareholders) holds at least 3% of the voting power of a company for at least three years, among other requirements, it can include nominees in the company proxy statement for as many as 25% of the seats on the board.
The new rule is in effect for the 2011 proxy season, except it will not apply to smaller reporting companies for three years.
The new rule has considerably more potential to affect smaller reporting companies because it is easier to obtain 3% of a smaller reporting company than a larger company. And, three years is a long time to tie up the estimated $3.5 billion needed to reach the 3% threshold at any of the 20 largest U.S. corporations by market cap. The 3% threshold may ensure that only significant long-term shareholders at large companies will be granted access, which was a stated goal of the Commission, but it could prove more likely …
The financial reform bill calls for the SEC to write proxy access rules that would give shareholders the ability to use the company’s proxy statement to nominate candidates for the board of directors. Currently, shareholders who wish to solicit votes for nominees must prepare and send their own proxy statement, which is expensive and rarely attempted. Some senators had proposed only allowing proxy access for shareholders holding 5% or greater of a company’s shares, but it appears negotiations have reverted to the original language of the bill, which does not specify a minimum holding requirement. When the SEC last proposed proxy access rules in 2009, the language contained minimum holding requirements of between one and five percent depending on the size of the company.
In the midst of financial reform negotiations in Congress, several questions remain about proxy access, which is not a focus of the bill:
- What should be the minimum holding period to allow shareholders proxy access?
- What should be the minimum ownership requirement?
- Should directors elected via proxy access rules be required to own stock in the company?
- Should long-term investors with small holdings be treated the same as large investors?
The financial reform bill will likely answer the question of whether the SEC has authority to create proxy access rules with a resounding yes, but the specifics of proxy access will likely be at the discretion of the Commission.…
The SEC has started a new webpage titled, “Spotlight on Proxy Matters” to provide investors with general information on the mechanics of proxy voting, the e-proxy rules, corporate elections, and proxy matters generally.
The website includes frequently asked questions regarding corporate elections and voting procedures and may be a direct response to the decline in proxy voting by retail shareholders that has occurred since e-proxy was implemented. In announcing the website, the SEC stated that the goal of the new program is increased investor participation in corporate elections.