SEC Adopts Rules Helping Shareholders Vote for Activists, Proposes Reversing Trump Era Proxy Advice Limitations
The U.S. Securities and Exchange Commission (SEC) announced Wednesday the adoption of new proxy voting rules that could make it easier for activist or dissident shareholders to gain seats on companies’ boards of directors, with the introduction of “Universal Proxy Cards” enabling shareholders voting by proxy to pick their preferred candidate slate, in the same manner as shareholders voting in person.
Under the prior rules, shareholders voting by proxy, for example by mail or electronically, could vote only for specific slates of candidates proposed by a company or by other shareholders, while those voting in person could vote for individual directors. With the new rules, all shareholders are provided with a universal proxy card, listing all board candidates proposed by all parties, whether proposed by management or by investors.
Calling the new rule “an important aspect of shareholder democracy,” SEC Chair Gary Gensler said:
“These amendments address concerns that shareholders voting by proxy cannot vote for a mix of dissident and registrant nominees in an election contest, as they could if voted in person. Today’s amendments will put these candidates on the same ballot. They will put investors voting in person and by proxy on equal footing.”
The adoption of the new rule was passed in a 4-1 vote, with Commissioner Hester M. Peirce dissenting. In a statement explaining her vote, Peirce, appointed by former President Trump, argued that while universal voting makes sense, the new rules make it too easy for frivolous shareholder activists to find their way onto the proxy card. Peirce wrote:
“I might have been able to support the rule if I felt we had explored thoroughly the potential that the rule could afford activists without a demonstrated commitment to the company an opportunity to meddle in the company’s affairs. I do not believe we have done this work so I cannot support the rule.”
Corporate governance groups welcomed the adoption of the new rule, noting the improved ability for shareholders to have input on the makeup of the boards of the companies they invest in. ISS Governance Solutions Business Head, Lorraine Kelly said:
“Today’s adoption by the SEC of a universal proxy rule represents a significant milestone in efforts by institutional investors and others who champion shareholder rights to ensure corporate elections are fair, transparent, and efficient. As an integral part of the proxy voting ecosystem, we are pleased to see the adoption of this new rule that will mandate inclusion of management and dissident nominees in a single proxy card in contested elections to afford shareholders voting by proxy the ability to support what they believe to be the optimal board composition.”
The SEC on Wednesday also proposed amendments to Trump-era rules regarding proxy voting advisors, addressing investor concerns that the rules impede the independence and effectiveness of proxy advisors.
In July 2020, the SEC approved amendments to its rules governing proxy solicitations that affected the role of proxy advisor services. While the SEC presented the rules as providing investors with greater transparency and complete information, many shareholder advocates opposed the rule as negatively impact shareholders, making the ability to provide proxy advice more costly and less efficient, while impacting the independence of the advice.
The new proposals would rescind the July 2020 rule amendments. Opening up the proposal to a 30-day comment period, Gensler said:
“Proxy advice voting businesses play an important role in the proxy process. Their clients deserve to receive independent proxy voting advice in a timely manner. I am pleased to release these proposals to the public and encourage the public to share their feedback at sec.gov.”