SEC Proposes Rules to Increase Proxy Access by Shareholders

The SEC has proposed rule changes that would require, upon the occurrence of a specified triggering event, companies subject to the SEC’s proxy rules, including investment companies registered under Section 8 of the Investment Company Act, to include in their proxy materials director nominees that are submitted by certain shareholders. ¹ The proposed rule would not limit a company’s ability to solicit proxies for its own slate of directors or its ability to oppose shareholder nominees.

The proposals follow recommendations made by the Division of Corporation Finance in its July 15 staff report, Review of the Proxy Process Regarding the Nomination and Election of Directors.

The text of the proposed rules is not yet publicly available. When the SEC publishes the proposed rules, we will distribute a more detailed SEC Alert.

Triggering Events
Under the proposed rule, companies would be required to include shareholder nominees in their proxy materials only if the following triggering events have occurred within the previous two years and only where state law permits shareholders to nominate a candidate for election as a director: ²

• one or more directors receives “withhold” votes from more than 35% of the votes cast with regard to one or more directors nominated by the company; or
• a shareholder proposal, which is submitted by a shareholder or group of shareholders that has held more than 1% of the company’s voting securities for one year and requests that the company become subject to the proposed shareholder nomination procedure, receives support from a majority of votes cast on that proposal at an annual meeting.

If a triggering event occurs, the company would be required to include shareholder nominees in the company’s proxy materials for the following two years.

Shareholders seeking control of the board of directors would not be entitled to nominate directors under the proposed rule.

 

¹ Note that the proposed rule would not apply to foreign private issuers, as they are not subject to the SEC’s proxy rules.
² Most states, including Delaware, allow shareholders to nominate director candidates.