By Gary Larkin, Research Associate, The Conference Board Governance Center
The issue of using universal proxy cards in contested elections has been on The Conference Board Governance Center’s radar since the spring and held a roundtable for its members last month on the topic. In fact, a small subgroup of the roundtable met with SEC staff earlier this month to discuss the feedback they received and a possible industry solution. [The Governance Center will publish highlights of its September 20 roundtable and a primer on universal proxy in the coming weeks.]
And now, some three weeks after that meeting, the SEC has voted to usher in the mandatory use of universal proxy cards in contested elections that would include the names of all board nominees – those nominated by the board and those nominated by dissident investors. The proposal
would give shareholders the ability to vote by proxy for their preferred combination of board candidates. Currently, this can only be done by shareholders who attend shareholder meetings in person.
“This change would allow shareholders through the proxy process to more fully exercise their vote for the director nominees they prefer,” SEC Chair Mary Jo White
Ken Bertsch, executive director of the Council of Institutional Investors (CII), was in favor of the SEC proposal. His organization had petitioned the SEC in 2014 to institute universal proxy cards.
“Currently, when there is a contest, investors voting are effectively disenfranchised because they have no practical ability to vote for the combination of management and dissident nominees they believe best serve their economic interests,” Bertsch said.
Commissioner Michael Piwowar was the lone dissenter in the 2-1 vote. Two reasons he cited
for not voting for the proposal were that he believes universal proxy cards will increase the chances of proxy fights, which will be to the detriment of shareholders, retail shareholders in particular. Also, he said under the amendments many of the shareholders holding minority shares may not receive the universal proxy card or the proxy disclosures.
Tom Quaadman, vice president for the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said in an e-mailed statement the changes would "turn director elections into annual political-style campaigns" and give companies a reason to avoid public financial markets, hurting their competitiveness. [See Reuters report.]
Under the proposed amendments:
- Proxy contestants would be required to provide shareholders with a universal proxy card that includes the names of both management and dissident nominees, which would allow shareholders to vote by proxy for the combination of nominees of their choice. Universal proxy cards would be required in all contested elections
- The definition of a “bona fide nominee” would be changed to include a person who agrees to be named in any proxy statement relating to a company’s next meeting of shareholders at which directors are to be elected. The amendment would enable parties to include all director nominees on their universal proxy cards.
- The “short slate rule” would be eliminated because universal proxy cards would make it unnecessary for dissidents to round out their partial slates with management’s nominees.
- Proxy contestants would be required to notify each other of their respective director candidates. A dissident would be required to provide a company with the names of the nominees for whom it intends to solicit proxies no later than 60 calendar days prior to the anniversary of the previous year’s annual meeting date. The company would be required to provide the dissident with the names of the nominees for whom the company intends to solicit proxies no later than 50 calendar days prior to the anniversary of the previous year’s annual meeting date.
- Dissidents would be required to solicit shareholders representing at least a majority 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 SEC website. To ensure that shareholders who receive a universal proxy card will have access to information about all nominees a sufficient amount of time before the meeting, 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 company files its definitive proxy statement.
- Universal proxy cards would be subject to presentation and formatting requirements to help ensure that universal proxy cards clearly and fairly present information
- Proxy cards would be required to include an “against” voting option for the election of directors in lieu of a “withhold” voting option in the case when a company has a majority voting standard.
The public comment deadline for the proposal is January 9, 2017.