By Amanda Maine, J.D.
The Universal Proxy Working Group (UPWG), which bills itself as an informal committee of market participants seeking to optimize proxy voting logistics for non-exempt solicitations in connection with contested corporate director elections, has submitted a letter to the SEC outlining its observations on universal proxy cards. UPWG’s recommendations drew on the SEC’s 2016 proposing release on universal proxies and the SEC’s Investor Advisory Committee’s (IAC) 2019 recommendation that the Commission adopt a universal proxy system.
Universal proxy. In 2016, the SEC approved for comment a proposal to amend the federal proxy rules to require the use of universal proxies that include the names of both registrant and dissident nominees, which would allow shareholders to vote by proxy in a manner that more closely resembles how they would be able to vote in person at a shareholder meeting. While the SEC has not acted on the proposal, the IAC recommended in September 2019 that the SEC adopt a universal proxy rule.
UPWG recommendations. UPWG’s letter was signed by the organization’s co-chairs David A. Katz of Wachtell, Lipton and Glenn Davis of the Council of Institutional Investors as well as representatives from Broadridge, CalSTRS, D.F. King & Co., the Florida State Board of Administrators, the Investment Company Institute, JPMorgan, LACERA, the New York State Common Retirement Fund, Okapi Partners, Parametric Portfolio Associates, Trian Fund Management, the Washington State Investment Board, and Wilson, Sonsini Goodrich & Rosati. UPWG advised that the views of the group are not monolithic, but that several themes relating to universal proxy have emerged among its members, which it outlined in its letter.
The system for contested director elections should facilitate the objectives of clarity, ease of use, and fairness, which the 2016 proposing release had established, UPWG wrote. Under qualifying circumstances, the registrant proxy card and the dissident proxy card must include all nominees and present them fairly in a way that is understandable and consistent across both cards and contests, UPWG stated.
UPWG voiced its support for requiring the disclosure on universal proxy cards of (1) voting on the universal proxy for more candidates than the available seats; (2) voting on the universal proxy card for fewer candidates than available board seats; and (3) signing and returning an otherwise unmarked universal proxy card.
UPWG also supports the presentation and formatting requirements put forth in the 2016 proposal, which, according to the letter, advanced the above-stated objectives without compelling opposing sides to produce identical cards or to coordinate the creation of a single universal proxy card. UPWG emphasized that the core improvement being sought is the ability of shareholders to use any proxy card they choose to vote for any combination of board nominees they prefer. The group acknowledged, however, that the formatting requirements in the 2016 proposal are not exhaustive and that further requirements (for example, standardized general colors for registrant and dissident cards) may be appropriate.
The 2016 proposing release required the dissident to solicit holders of shares representing a simple majority of outstanding voting power. In its letter, UPWG indicated that a majority of its participants are in favor of the idea that requiring the solicitation of holders of two-thirds of outstanding voting power as a workable solution. The letter notes that while a requirement to solicit the holders of all outstanding votes would ensure that no shareholder is disenfranchised, this approach would not strike an appropriate balance between providing the utility of the universal proxy system and precluding dissidents from capitalizing on the inclusion of dissident nominees on the registrants card without undertaking "meaningful" solicitation efforts, the letter explains.
UPWG acknowledged concerns relating to scenarios in which a registrant nominee chooses not to serve on the board if a dissident director is elected. According to UPWG, this issue can be resolved by requiring that each side disclose in its proxy materials that there is no assurance that elected nominees will serve and that the materials identify any candidate who does not intend to serve if elected with the dissident nominees.