Amendments Would Provide Investors the Ability to Choose More Easily Between Candidates Offered by Activists and Candidates Offered by a Company
On October 26, 2016, the Securities and Exchange Commission (“SEC”) proposed amendments to the proxy rules to facilitate voting in director elections by, among other things, requiring parties in a contested election to use universal proxy cards that would include the names of all board of director nominees. According to SEC Chair Mary Jo White, the proposed amendments are designed to “promote fundamental fairness and efficiency in the voting process and support shareholder rights.” If adopted, these amendments would provide shareholders voting by proxy in contested elections the “ability to more easily pick among all candidates on the ballot, just as shareholders who attend shareholder meetings can do.”
Principally, the proposed amendments would require activists and registrants in contested elections to provide shareholders with a universal proxy card that includes the names of both the activist’s and the registrant’s director nominees. As a result, shareholders would have the ability to choose the mix of nominees whom they believe will best be able to run the company. This is in stark contrast to the current rules, which effectively present shareholders with an “all or nothing” vote requirement in contested elections.
Additionally, the amendments would establish certain ground rules for contested elections, including filing deadlines, minimum solicitation requirements for activists and presentation and formatting requirements for universal proxy cards. As proposed, the amendments would apply to all non-exempt solicitations for contested elections, with an exception for registered investment companies and business development companies. The SEC has also proposed amendments to the proxy rules designed to ensure that proxy cards specify the applicable shareholder voting options in all director elections and to require proxy statements to include disclosure regarding the effect of a shareholder’s election to withhold its vote.
The amendments are subject to the SEC’s standard public comment period, which remains open for 60 days following publication of the proposing release in the Federal Register.