United States: SEC Proposes Rules For Requiring Universal Proxy Cards In Contested Director Elections

During its open meeting last week, the Securities and Exchange Commission (SEC) voted to propose amendments to the federal proxy rules to require the use of universal proxy cards for all annual or special meetings with contested elections of directors (other than those involving registered investment companies and business development companies and nonexempt solicitations). The proposal would require the use of universal proxy cards that include the names of both registrant and dissident nominees, which, according to the proposed rule release, would "allow shareholders to vote by proxy in a manner that more closely resembles how they can vote in person at a shareholder meeting." Indeed, throughout the proposed rule release, the SEC emphasizes its intent that proxy cards replicate the choices available to shareholders voting for directors in person at a shareholder meeting.

Key Takeaways

  • The proposed rule allows shareholders to vote in a manner that more closely resembles voting in person at a shareholder meeting by allowing them to "pick and choose" individual registrant and dissident nominees.
  • Because dissidents generally must provide advance notice pursuant to registrant bylaws earlier than the 60 days set forth in the proposed rule, in most cases, there will be no additional obligation on dissidents.
  • The universal proxy proposal effectively eliminates the short slate rule, which takes away the ability of the dissident to hand-select registrant nominees that it prefers to roundout its slate of directors. Preferences, however, can still be conveyed in the dissident's proxy materials. In addition, the proposed rule would allow dissidents to nominate a majority of the directors without having to nominate a full slate.

Current Proxy Rules Do Not Allow Shareholders to Pick and Choose Director Nominees

Under the current proxy rules, shareholders voting by proxy in contested elections are often unable to make selections based solely on their preferences for particular candidates. Instead, such shareholders are effectively required to make a choice between submitting their votes on the registrant's proxy card or the dissident's proxy card. This impedes a shareholder's ability to pick and choose nominees on each card. If a shareholder wants to split his or her vote by voting for a mix of the registrant and dissident nominees, he or she generally must attend the meeting in person and vote.

Proposed Rules to Require Use of Universal Proxy Cards in Contested Elections

To replicate the choices available when voting in person, the proposed proxy rules would require each soliciting party in contested director elections involving nonexempt solicitations to distribute a universal proxy card that includes the names of all candidates for election to the board of directors—both the registrant's director nominees and the dissident's director nominees.

Additionally, the SEC is proposing to amend the proxy rules to establish new procedures for the solicitation of proxies, the preparation and use of proxy cards, and the dissemination of information about director nominees in contested elections. Specifically, in addition to requiring universal proxy cards in contested elections, the amendments to the proxy rules would:

  • Require the Dissident to Provide the Registrant with Notice of its Director Nominees. No later than 60 calendar days prior to the anniversary of the previous year's annual meeting date, the proposed rules would require the dissident in a contested election to provide notice to the registrant of its intent to solicit proxies in support of the dissident's director nominees. If the registrant did not hold an annual meeting during the previous year or if the annual meeting date has changed by more than 30 calendar days from the previous year, the proposed rule would require the dissident to provide notice by the later of 60 calendar days prior to the annual meeting date or the 10th calendar day following public announcement of the annual meeting date. This requirement would be in addition to a dissident's obligation to comply with any applicable advance notice provision in the registrant's governing documents. As noted above, because dissidents generally must provide advance notice pursuant to registrant bylaws earlier than the 60 days set forth in the proposed rule, in most cases, there will be no additional obligation on dissidents.
  • Require the Registrant to Provide the Dissident with Notice of its Director Nominees. No later than 50 calendar days prior to the anniversary of the previous year's annual meeting date, the registrant in a contested election would be required to provide the dissident with notice of the names of the registrant's nominees. If the registrant did not hold an annual meeting during the previous year or if the annual meeting date has changed by more than 30 calendar days from the previous year, the proposed rule would require the registrant to provide notice no later than 50 calendar days prior to the annual meeting date.
  • Require the Dissident to Solicit Holders of Shares Representing a Majority of Voting Power. The proposed rules would require that, after providing notice to the registrant, the dissident must solicit the holders of shares representing at least a majority of the voting power of shares entitled to vote on the election of directors. This requirement, according to the SEC, helps address the concern that universal proxy cards would allow a dissident to have its nominees included on a registrant's proxy card without expending any of the dissident's own resources to engage in meaningful solicitation efforts.
  • Revise the consent required for a "Bona Fide Nominee." Currently, Exchange Act Rule 14a-4(d)(1), the "bona fide nominee rule," prevents a party from including a director nominee on its proxy card who has not consented to being named in the proxy statement and serve if elected, except that dissidents may include company nominees on their slate if they are nominating less than a majority of the board (aka, a "short slate"). Accordingly, in an election contest, one party may not include the other party's nominees on its proxy card, unless the other party's nominees consent. For a variety of strategic reasons, in a contested election, the nominees for one party often refuse to consent to being included on the opposing party's card. The proposed rule would change the definition of "bona fide nominee" so that the scope of a nominee's consent is effectively expanded to include consent to being named in any proxy statement for the applicable meeting. This change would remove a current impediment to a registrant or dissident including the other party's nominees on its proxy card.
  • Eliminate Short Slate Rule. The short slate rule, which is found in Exchange Act Rule 14a-4(d), allows a dissident seeking to elect a minority of the board to solicit authority to select some of the registrant's nominees for inclusion on its proxy card. Because the proposed rule requires each party in a contested election to include on its proxy card all candidates that consented to being named on a proxy card for the applicable meeting, the short slate rule would no longer be necessary. While eliminating the short slate rule does take away the ability of a dissident to select the registrant nominees that it prefers to round out its slate of nominees on its proxy card, the dissident still has the ability to include recommendations for its preferred registrant nominees in its proxy materials. Furthermore, it allows dissidents to nominate a majority of the directors without having to nominate a full slate.
  • Require the Dissident to file a Definitive Proxy Statement with the SEC by the Later of 25 Calendar Days Prior to the Meeting or Five Calendar Days After the Registrant Files its Definitive Proxy Statement. The proposed rule would require a dissident to file its definitive proxy statement with the SEC by the later of 25 calendar days prior to the applicable meeting or five calendar days after the registrant files its definitive proxy statement. According to the SEC, this deadline would ensure that shareholders that receive a universal proxy will have access to information about all nominees for a sufficient amount of time prior to the meeting. The SEC recognizes that some shareholders may submit their vote on the registrant's universal proxy before the dissident's proxy statement is available. However, the SEC believes that the 25-calendar-day deadline would provide these shareholders with sufficient time to review the dissident's proxy statement and change their votes by submitting a later-dated proxy card if they choose to do so.
  • Impose Specific Presentation and Formatting Requirements for All Director Elections Proposals on Universal Proxy Cards. In order to ensure that the universal proxies will clearly and fairly present information about all director nominees, proposed Rule 14a-19(e) would include the following presentation and formatting requirements for universal proxies in contested elections: (i) the proxy card must clearly distinguish between registrant nominees, dissident nominees and any proxy access nominees; (ii) within each group of nominees, the nominees must be listed in alphabetical order by last name on the proxy card; (iii) the proxy card must use the same font type, style and size to present all nominees on the proxy card; (iv) the maximum number of nominees for which authority to vote can be granted must be prominently disclosed on the proxy card; and (v) the proxy card must prominently disclose the treatment and effect of a proxy card executed so as to grant authority to vote for more nominees than the number of directors being elected or fewer nominees than the number of directors being elected, or not grant authority to vote for any nominees. Additionally, where both parties have proposed a full slate of nominees and there are no proxy access nominees, the SEC is proposing that the proxy card may provide the ability to vote for all dissident nominees as a group and all registrant nominees as a group. The proposed rules would not prohibit registrants and dissidents from continuing the practice of distinguishing their respective proxy cards by distributing them with a distinctive color.
  • Amend Required Disclosure for Director Election Voting Standards and Voting Options. The SEC is proposing to amend Exchange Act Rule 14a-4(b) so that proxy cards for director elections must include an "against" voting option in lieu of a "withhold authority to vote" where there is a legal effect to such a vote. Also, the proposed rule would require that proxy cards provide shareholders with the opportunity to "abstain" (rather than "withhold authority to vote") in a director election governed by a majority voting standard. Finally, the SEC is proposing amendments to Item 21(b) of Schedule 14A so that proxy statements are expressly required to disclose the effect of a "withhold vote." These changes are being proposed to address the SEC's awareness of concerns that the proxy statements of some companies contain ambiguities and inaccuracies about voting standards and director elections.

Request for Public Comment on the Proposed Rule

The SEC will seek public comment on the proposed rules for 60 days.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions