Four-Year Effort to Allow Universal Proxy Cards for Contested Shareholder Elections Moves Through SEC Channels

07/14/2017 11:04 am ET

A 2013 move to require the use of universal proxy voting cards in contested shareholder elections might finally be adopted as standard corporate practice, based on an October 2016 amendment issued by the U.S. Securities and Exchange Commission (SEC).

If adopted by the SEC, the rule would do away with the practice of requiring shareholders to choose from only one of two proxy voting cards when opposing slates are presented for corporate board of director elections – a card for the candidates nominated by company officials, and a card for candidates nominated by opposition shareholders or activists.

Instead of being forced to vote only for company candidates or opposition candidates, shareholders would be allowed to choose from among all candidates from both sides on a universal proxy card.

Under the current one-card rule, shareholders who attend annual company meetings in person can vote for any of the nominated directors, but as Laura Anthony, founding partner of Legal and Performance LLC in West Palm Beach points out, the vast majority of shareholders (99.9%) vote by proxy (without attending the meeting) – either online or via mailed ballot. She notes that the universal proxy idea has the potential to continue moving through SEC channels, even amid agency personnel changes that began with a new administration in January 2017

Opinions vary on the move toward a universal proxy card, with the SEC supporting it as a way to enable shareholders to vote more seamlessly for their preferred candidates from either slate. Supporters also think it is a necessary tool in an era of strong shareholder activism.

Opponents, however, fear the one-slate proxy card will embolden shareholder activists and place dissident members on boards of directors, leading to a loss of collegiality, productivity and long-term profitability. They also fear fewer candidates will be willing to serve as board members, or that shareholders will be confused as to which candidates represent which side during the voting process.

Shareholder voting requirements are dictated by the Securities Exchange Act of 1934, which requires shareholders of certain companies to elect boards of directors during an annual shareholder meeting. A 1992 “short state rule” altered the process by allowing opposition shareholders – within certain limitations and according to specific technicalities – to use their proxy votes to choose some or all of a company’s nominated directors.

In 2013, the SEC Investor Advisory Committee recommended a universal proposal card like the one now being proposed, and the Council of Institutional Investors backed the idea one year later.

In its 2016 recommendation for the universal proxy card, the SEC provides clear guidelines and timetables for how nominees should be described and categorized on the single card, how the ballots should be formatted, and deadlines for when nominations and ballots should be finalized and printed. It also changes the proxy form by including “against” and “abstain” voting options.

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