The SEC is proposing amendments to the federal proxy rules that will require the use of universal proxies in all non-exempt solicitations in connection with contested elections of the directors. These universal proxies will include the names of both registrant and dissident nominees, which would allow shareholders to vote by proxy in a manner that more closely resembles how they would vote at a shareholder meeting. The proxy process is the way most shareholders engage in the election of directors, so these proposed changes would have a large impact on corporations with securities registered pursuant to Section 12 of the Exchange Act. The Commission has long been focused on protecting and enhancing the ability of shareholders to elect directors, and these rules concerning proxies would permit better shareholder control over director elections.
Currently shareholders who vote in person at a shareholder meeting can select candidates from all the nominated director candidates regardless of party. Shareholders voting by proxy, however, can only select from the candidates provided by the party soliciting the shareholder’s proxy. Because state law permits only one proxy card to be submitted in an election contest and quite often the registrant’s nominees are on one card while the dissident’s are on another, the shareholder voting by proxy cannot choose from all the possible candidates. Exacerbating this is the fact that consent is required for a candidate’s name to appear on a proxy card, and because a contested election is often contentious, consent from opposing candidates is often not given. This results in proxy cards containing only a slate of candidates from one party. Shareholders are thus unable to make choices based on their preferences alone. To prevent this, the Commission is proposing the use of a “universal proxy”, or a proxy card that includes the names of all the nominated director candidates for whom proxies are solicited in a contested election. This would further the Commission’s goal in molding the proxy process to match the process of voting in person as much as possible.
In order to provide for the use of universal proxies in contested elections, the Commission is proposing to establish new rules for the solicitation of proxies, the preparation and use of proxy cards, and the dissemination of information pertaining to all director nominees. The amendments would:
1. Revise the consent of a bona fide nominee
2. Eliminate the short slate rule, which permits a dissident to “round out its slate” by soliciting proxy authority to vote for some registrant nominees on the dissident’s card
3. Require the use of universal proxy cards (rather than dissident and registrant cards, for example) in all non-exempt solicitations in contested elections
4. Require dissidents to notify registrants of their intent to solicit proxies in support of nominees other than the registrant’s nominees and name those nominees
5. Require registrants to notify dissidents of the names of their nominees
6. Prescribe a filing deadline for dissidents’ definitive proxy statement
7. Require dissidents to solicit the holders of shares representing at least a majority of the voting power of shares entitled to vote in the election
8. Require universal proxies
Additionally, there would be amendments to Rule 14a-4(b), which would apply to all director elections. These amendments would mandate that proxy cards provide a “vote against” option as allowed by state laws. Also, shareholders would be allowed to abstain in an election where a majority voting standard is in place.
The SEC is interested in public comments on these topics. The complete set of comment solicitations can be read in the full release concerning this Proposed Rule. The public comment period is open until sixty days from publication of the rule in the Federal Register. You can submit comments using the form available on the SEC’s website or by e-mailing rule-comments@sec.gov with File Number S7-24-16 in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, be sure to reference File Number S7-24-16.
