SEC ADOPTS NEW RULES GRANTING SHAREHOLDERS GREATER PROXY ACCESS
On August 25, 2010, the SEC adopted new proxy access rules that will allow certain shareholders or groups of shareholders that hold three percent of the voting stock of an issuer to include director nominees in such issuer’s proxy materials.
What companies are subject to the new rules?
Generally, the rules apply to all Exchange Act reporting companies. There is no way to “opt-out” of the new rules regarding inclusion of director nominees in a company’s proxy materials. The new rules will not apply to “smaller reporting companies” until after a three-year phase-in period.
How soon will the new rules apply to an issuer?
The new rules become effective 60 days after they are published in the Federal Register. Under the new rules, shareholders must provide notice by filing a new Schedule 14N no earlier than 150 days, and no later than 120 days, before the one-year anniversary of the date an issuer mailed its proxy statement for the prior year. If the rules become effective on November 1, 2010, which looks like a reasonable estimate based on prior SEC actions, then the rules will apply to an issuer that mailed its 2010 proxy statement on or after March 1, 2010.
Which shareholders are eligible to include a nominee on an issuer’s proxy materials?
In order to be eligible to include a director nominee in an issuer’s proxy materials, a shareholder, or a group of shareholders, must, among other things, have 3% of the voting power (a group may aggregate its interests) and have held the securities continuously for at least three years.
What limits are there on the number of shareholder director nominees that must be included in an issuer’s proxy materials?
An issuer is required to include up to the greater of (i) one shareholder nominee or (ii) the number of nominees that represents up to 25% of an issuer’s board of directors. If an issuer has a classified or staggered board, the 25% calculation is still based on the total number of board seats. If more than one shareholder or shareholder group submits a nominee(s) and such aggregate number of nominees exceed the maximum number of allowable shareholder nominees, an issuer must include the nominee(s) of the nominating shareholder or shareholder group with the highest voting percentage. After such nominee(s) have been included and there are additional allowable shareholder nominees, an issuer must include the nominee(s) of the nominating shareholder with the second highest voting percentage and so forth until an issuer has included the maximum number of shareholder nominees.
Can shareholders use the new rules as a takeover mechanism?
A nominating shareholder or group of shareholders will be required to certify that it does not have intent to change control of an issuer or to gain more than the maximum number of board seats provided for under the new rules.
Are there any limitations on who a shareholder may nominate?
A shareholder, or group of shareholders, must nominate a person:
- whose candidacy or board membership does not violate applicable laws and regulations;
- who satisfies the objective independence standards of the applicable national securities exchange; and
- who does not have an agreement with the issuer regarding the nomination
There are no restrictions on the relationship between the nominating shareholder and the nominee, although the Schedule 14N would need to describe any such relationship.
Additional procedure to provide shareholder proxy access.
The SEC also adopted additional rule changes that provide that issuers may no longer exclude from their proxy materials shareholder proposals that would amend an issuer’s governing documents to establish a procedure for including shareholder director nominees in an issuer’s proxy materials. This allows shareholders the ability to propose additional procedures that provide even greater access than the new rules adopted by the SEC.
Where can you find additional information?
A complete copy of the release is available on the SEC’s website.
If you have any questions about the content of this alert, please contact a member of Oppenheimer’s Securities Team.
This alert is a copyrighted publication produced by Oppenheimer Wolff & Donnelly LLP. The information contained in this alert is of a general nature and is subject to change. Readers should not act without further inquiry and/or consultation with legal counsel.