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Section 312.07 of the NYSE Listed Company Manual provides that, where shareholder approval is a prerequisite to the listing of any additional or new securities of a listed company, or where any matter requires shareholder approval, the minimum vote which will constitute shareholder approval for such purposes is defined as approval by a majority of votes cast on a proposal in a proxy bearing on the particular matter. Section 312.07 is currently applicable to shareholder approval of stock issuances under Sections 303A.08 (equity compensation) and 312.03 of the Manual.

The text of Section 312.07 does not specifically address the treatment of abstentions. However, the NYSE has historically advised companies that abstentions should be treated as votes cast for purposes of Section 312.07. Under that approach, a proposal is deemed approved under Section 312.07 only if the votes in favor of the proposal exceed the aggregate of the votes cast against the proposal plus abstentions. This approach has caused confusion among listed companies. The corporate laws of many states, including Delaware, allow companies to include in their governing documents that votes cast for purposes of a shareholder vote includes yes and no votes (but not abstentions), such that consistent with those state laws, many public companies have bylaws indicating that abstentions are not treated as votes cast.

The NYSE has filed a rule proposal with the SEC to amend Section 312.07 to provide that a company must calculate the votes cast with respect to a proposal that is subject to Section 312.07 in accordance with its own governing documents and any applicable state law. The NYSE believes that this treatment of abstentions will avoid any complications engendered among issuers and shareholders when different voting standards are applied under the NYSE rule, a company’s governing documents, and/or applicable state laws.

In the rule proposal the NYSE notes that Nasdaq has a rule requiring that proposals receive a majority of “the votes cast,” but is silent on the question as to whether abstentions should be treated as votes cast. Nasdaq has published an FAQ on its website that clearly states: “Nasdaq does not define the term “votes cast”. As such, a company must calculate the ‘votes cast” in accordance with its governing documents and any applicable state law.”

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