SEC's New Proxy Access Rules Explained

In the sixth of a series of articles on the financial reform bill and its implications, Ropes & Gray banking co-practice leader Mark Nuccio and Laurie Churchill, who is counsel to Ropes & Gray’s corporate group and a member of the firm’s securities & public companies practice group, provide an explanation of the key changes in the SEC's new proxy access rules. The rule changes were officially adopted on August 25. The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the SEC the power to make these rule changes, although there still may be legal challenges to the new rules in the future.

In the article published by Corporate Board Member on August 30, the attorneys analyze these five takeaways from the rule changes: 

• Not all shareholders will be able to make their way onto the company's proxy card - The new rules require that the nominating shareholder or group must hold at least 3% of the total voting power of the company's securities that are entitled to be voted on the election of directors and that the nominating shareholder or group have held the securities continuously for at least three years;
• The new rules are not designed to allow shareholders to take over the board - Nominating shareholders or groups may only request inclusion of a number of nominees equal to or less than 25% of the company's board of directors;
• New procedural hoops to jump through - Nominating shareholders or groups must file with the SEC, and provide to the company a Schedule 14N along with all required disclosure materials. There are also a number of new procedures to follow if a company attempts to exclude nominees from its proxy materials; 
• Other new means of influencing director elections - Shareholders can now advance proposals to broaden proxy access (for example by lowering the ownership threshold or holding periodic requirement to gain proxy access) where they previously could not have done so; and
• Most issuers must prepare for change (but smaller reporting companies get a temporary reprieve) - For smaller reporting companies, the changes will become effective three years after the rule changes becomes effective for all other companies.