On November 17, the SEC took action on two matters involving proxies. First, after a five-year delay, the SEC adopted rules requiring parties in a proxy contest to use so-called “universal” proxy cards that include all director nominees – those proposed by the insurgent and those proposed by the company -- standing for election at a shareholder meeting. The rule is generally regarded as increasing the likelihood that an insurgent will gain spots on the board. However, aside from the limited applicability of the rule, even some corporate establishment types have said that universal proxies may enhance the likelihood of a “split slate” where at least some of the company’s nominees stay on the board. In order “[t]o facilitate transition to the new rules, compliance…will be required for any shareholder meeting involving a contested director election held after August 31, 2022.”
In a separate action on the same day, the SEC proposed changes to its proxy rules relating to voting advice provided by proxy advisory firms. While the proposed changes have been characterized as “amendments,” in reality they would rescind rules adopted just last year that exempted proxy advisory firms from the informational and filing requirements of the proxy rules, subject to compliance with certain conditions. The proposed changes would also rescind 2020 amendments that clarified proxy advisory firm liability for voting advice. While the 2020 rules were criticized by the corporate community (and, to be fair, the proxy advisory firms as well), they enhanced the ability of companies – particularly smaller companies – to obtain proxy advisory firms’ voting analyses and recommendations and to rebut those analyses and recommendations. If the proposed changes are adopted, those benefits of the 2020 rules will be eliminated. The proposed rules are subject to a 30-day public comment period.
Please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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