[Update: See our analysis of the proposed rule here.]
The SEC has announced it will consider proposed rules that permit the use of universal proxy cards in contested elections on October 26, 2016.
The concept of a universal proxy has been on the periphery of the SEC’s rulemaking agenda for some time:
- The SEC considered requiring implementation of a universal proxy ballot with its overhaul of the proxy rules in 1992 (Release No. 34-31326) but declined noting that while “any such universal ballot is appealing since the shareholder could make such a selection if he or she attended the annual meeting in person” a universal proxy “would represent a substantial change in the SEC’s proxy rules.”
- Universal proxy again came to the attention of the SEC in 2013, when the SEC’s Investor Advisory Committee made a recommendation for the SEC to explore revisions to the proxy rules to provide proxy contestants with the option to list both the company’s and the contestant’s nominees on one proxy card with respect to short slate elections.
- In 2014, the Council of Institutional Investors (CII) submitted a rulemaking petition requesting that the SEC amend the proxy rules to require the use of universal proxy in all contested elections and has continued to promote adoption of universal proxy in subsequent correspondence with the SEC.
More recently, in a June 2015 speech, SEC Chair Mary Jo White conveyed the SEC’s current view of the universal proxy ballot: “It is not generally possible for shareholders to pick freely from nominees on each side’s proxy cards unless they attend and vote in person at the meeting. By operation of state law requirements, the proxy rules, and practical considerations, shareholders executing a proxy face an either/or proposition: they can vote for either the entire slate of candidates put forward by management or by a proponent — they cannot pick and choose the individuals that they believe are the best candidates from the two slates . . . Given these obstacles, some have requested that the SEC revise the proxy rules to facilitate the use of a “universal proxy ballot,” a single proxy card that would list both management’s and a proponent’s nominees in contested director elections, allowing shareholders to vote for a mix of nominees of their own choosing.”
The Chair’s 2015 speech carried with it an implicit indication of the rising importance of universal proxy on the SEC’s rulemaking agenda. Following in the path of the SEC’s numerous attempts at implementing proxy access rules, the possibility of forthcoming rulemaking has spurred debate amongst various issuers, investors, and their respective advisors and constituents. In particular, the proposed rules will likely attract widespread debate on the following issues:
- Will it increase or decrease shareholder activism?
- Will it impact the outcome of election contests?
- Will it embolden activists to run more contests?
- Will it stimulate increased cooperation and settlements between issuers and activists, thereby decreasing contests?
In the same 2015 speech, Chair White noted some of the decisions the SEC will face in its rulemaking effort:
- When can a universal ballot could be used?
- Will it be optional or mandatory?
- What eligibility requirements will be imposed on shareholders to use universal ballots?
- What will the ballot would look like?
- Must both sides must use identical universal ballots?
How the SEC will balance the countervailing viewpoints will be substantially clearer following the SEC open meeting on October 26th.