By Amy Leisinger, J.D.
In recent comments, the Council of Institutional Investors applauded numerous aspects of the SEC’s universal proxy proposal. Noting its own ongoing efforts to facilitate the use of universal proxy cards in contested elections, the CII also offered its support for proposed revisions to the form of proxy and disclosure requirements with respect to voting options and voting standards applicable to all director elections. The organization did, however, offer some suggested modifications to further enhance the benefits of universal proxies for shareholders.
Universal proxy proposal. Under the current proxy rules, only shareholders who attend a meeting in person at which directors are elected are able to vote for nominees on both management and dissident proxy cards; those who vote by proxy must submit their votes on one or the other and cannot choose a combination. The proposed amendments to the proxy rules would require proxy contestants to provide a universal proxy card that includes the names of registrant and dissident nominees, allowing shareholders to choose among all of the candidates rather than casting an all-or-nothing vote. Proxy contestants would be required to provide each other with a list of their director candidates, and dissidents would be required to solicit shareholders representing at least a majority of the shares entitled to vote. The contestants would have to refer shareholders to each other's proxy statements to obtain information about their nominees, and dissidents would have to file their definitive proxy statement with the SEC by the later date of 25 calendar days before the meeting or five calendar days after the registrant files its definitive proxy statement.
CII universal proxy support. In its comments, the CII stressed that requiring opposing sides engaged in a contested election to use a proxy card naming all management and dissident nominees with equal prominence would allow shareholders (particularly retail investors) to vote for their preferred combination of nominees, providing investors voting by proxy with the same ability to vote for a mix as those attending the meeting in person. Specifically, the CII praised the proposed change to the “bona fide nominee rule” to require that a nominee consent to being named in any proxy statement, as opposed to providing specific consent for an opponent’s proxy card, but suggested that requiring nominees of each party be grouped together clearly with applicable statements of support would address any potential concerns regarding inaccurate appearances of approval. Further, the CII noted, if this rule is amended as proposed, but the universal proxy requirement is not adopted, the short slate rule should be made optional in order to allow a dissident to select registrant nominees to round out its own slate of nominees.
The CII also agreed that the use of universal proxy cards should be mandatory as proposed, as an optional system would not effectively facilitate the equivalent proxy and in-person voting and would provide opportunities for inappropriate tactical use of universal proxy cards. According to the organization, the proposal properly requires a dissident to solicit the holders of shares representing at least a majority of the voting power of shares in order to prevent the dissident from capitalizing on inclusion on the registrant’s universal proxy card without undertaking meaningful efforts. The organization also applauded the proposed requirement that each soliciting person in a contested election refer shareholders to the other party’s proxy statement for information about other nominees.
While further agreeing with the Commission proposed notice and filing periods, the CII commended the proposed change to require the form of proxy for a director election governed by a majority voting standard to include a means for shareholders to vote “against” each nominee and a means for shareholders to “abstain” from voting in lieu of providing a means to “withhold authority to vote.” This change would alleviate confusion with respect to the effects of whether a vote is cast or withheld, according to the organization. However, the CII requested that the SEC also prohibit companies from providing an “against” option if that choice has no legal impact and require them to refer to voting options consistently throughout their materials.
Split-ticket voting will likely increase if the proposed changes are adopted, and shareholder costs and inconvenience will decrease without shifting burdens to registrants, the organization noted. Most importantly, however, “removing constraints on shareholder voting choices through universal proxy cards will result in election outcomes that better reflect shareholder preferences,” the CII concluded.