In a recent speech focusing on proxy-related issues, Securities and Exchange Commission (SEC) Chair Mary Jo White has indicated that the SEC is working to propose new rules concerning universal proxies. She also encouraged companies to adopt them even before the SEC weighs in on this area.
Currently in the United States, it is generally not possible for shareholders to choose freely from among the management and dissident slates in contested director elections unless they attend the meeting and vote in person. Accordingly, in most circumstances shareholders are required to vote for entire slates of directors.
Universal proxies allow shareholders to vote for a combination of management and dissident candidates. Present US rules do not require universal proxies, and in fact pose several obstacles to them. For instance, while both sides' nominees can consent to appear on the other side's proxies, this requires the consent of the other side. As recent proxy fights have illustrated, this consent is rarely obtained.
Chair White indicated that while she had asked SEC staff to bring "appropriate rulemaking recommendations before the Commission on universal proxy ballots," there is by no means consensus yet on precisely what rules should be adopted. Questions which remain to be determined include "when a universal ballot could be used, whether it would be optional or mandatory and under what circumstances, whether any eligibility requirements should be imposed on shareholders to use universal ballots, what the ballot would look like, and whether both sides must use identical universal ballots."
Chair White encouraged companies to make efforts to adopt universal proxies even before new rules are issued, as it "could be beneficial for your shareholders." She said that in this instance, there was no need to wait for the SEC to act.
In an article on the SEC's intention to propose new rules, the Wall Street Journal suggests that this is the SEC's latest nod in favour of shareholder activism. The Journal noted Chair White's previous remarks in which she called some activism "constructive" and said that "in certain situations, activism seeks to bring about importance changes at companies that can increase shareholder value." Universal proxies are widely seen as encouraging activism because they allow shareholders to split their votes more easily. In contrast, many companies contend that they will complicate the voting process and introduce confusion.
In Canada, just as in the US, universal proxies are not mandatory and have only rarely been used. The Canadian Coalition for Good Governance has nonetheless called for them to be mandatory in a recent policy paper, which Trevor Zeyl discussed in a previous post on this blog. It remains to be seen what shape these proposed new SEC rules will take and to what degree they will influence the proxy system in Canada.
The author would like to thank Joe Bricker, summer student, for his assistance in preparing this legal update.
Norton Rose Fulbright Canada LLP
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