Corporate & Securities Law Advisory
In a move we expect will pave the road for an increase in proxy contests, on November 17, 2021, the Securities and Exchange Commission adopted new Rule 14a-19 and amendments to existing rules under the Securities Exchange Act of 1934 to require the use of “universal” proxy cards in all nonexempt contested director elections. The new rules take effect for shareholder meetings held after August 31, 2022. The Commission also proposed amendments that would rescind two rules applicable to proxy voting advice businesses that the Commission adopted in 2020.
Universal Proxy Rules for Director Elections
A universal proxy card lists the names of all duly-nominated director candidates for election at an upcoming shareholder meeting, regardless of whether the candidates were nominated by management or activist shareholders. Currently, shareholders voting by proxy in contested director elections are unable to vote for a combination of director nominees from competing slates as they could if they voted in person at the shareholder meeting. Universal proxy cards allow shareholders to vote through the proxy process in the same manner as they could by voting in person. To facilitate the use of universal proxy cards, the Commission amended proxy rules so each side can list the other side’s director candidates on its universal proxy card. The new rules also establish new notice and filing requirements for all soliciting parties, as well as formatting and presentation requirements for universal proxy cards. In addition, the final rules require shareholders presenting their own director candidates in the contest to solicit holders of a minimum of 67 percent of the voting power of shares entitled to vote in the election.
The rules also provide new requirements for all director elections, including uncontested elections. They mandate that “against” and “abstain” voting options be provided on a proxy card where such options have legal effect under state law. The rules also require disclosure in the proxy statement about the effect of all voting options provided.
SEC Proposes Rule Amendments to Proxy Rules Governing Proxy Voting Advice
Also on November 17, 2021, the Commission proposed amendments to its July 2020 rules governing proxy voting advice on which proxy voting advice businesses often rely. The proposal would rescind conditions to the availability of two exemptions from the proxy rules’ informational and filing requirements. Those exemptions were intended to give companies more of an opportunity to review and respond to proxy advisors’ voting recommendations and reports. Those conditions require (i) registrants that are the subject of proxy voting advice to have such advice made available to them in a timely manner, and (ii) clients of proxy voting advice businesses are provided with a means of becoming aware of any written responses by registrants to proxy voting advice. Investors and others have expressed concerns that these conditions will impose increased compliance expenses on proxy voting advice businesses. The proposed amendments aim to address investor concerns by rescinding Rule 14a-2(b)(9)(ii), as well as related safe harbors and exclusions from those conditions.
The proposed amendments also rescind the 2020 changes made to liability provisions. Specifically, the proposed amendments will rescind Note (e) to Rule 14a-9, which provides examples of material misstatements or omissions related to proxy voting advice, while affirming that the rule applies to material misstatements of facts contained in proxy voting advice. Investors and others have expressed concern that Note (e) may increase proxy advisory business’ litigation risks, which could impair the independence and quality of their proxy voting advice. The proposing release includes Commission guidance relating to the application of Rule 14a-9 to statements of opinion in proxy voting advice.
The SEC is seeking public comment on the proposed rule change within 30 days after publication in the Federal Register.
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