In a move to improve shareholder democracy the US Securities and Exchange Commission (SEC) has proposed that universal proxy cards be introduced that allow investors to vote for directors as they would if they attended the company’s annual general meeting. However, one of the Commissioner, Michael Piwowar, has expressed his opposition to the proposal claiming that the changes pander to special interests.

Currently shareholders not attending the meeting in person uses either the company’s or a dissident proposers’ proxy card if there is a contested director election. Shareholders at the meeting can vote on the nominees individually. The proposed universal proxy card will give all shareholders equivalent rights to vote on individual directors.

“The proposed changes would allow shareholders to vote by proxy in a manner that more closely replicates how they can vote in person at a shareholder meeting,” said SEC Chair Mary Jo White.  “This change would allow shareholders through the proxy process to more fully exercise their vote for the director nominees they prefer.”

The SEC said the rules would apply to all non-exempt solicitations for contested elections other than those involving registered investment companies and business development companies.  In addition, the proposed rules would require management and dissidents to provide each other with notice of the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents, and prescribe presentation and formatting requirements for universal proxy cards.

Proxy contestants would be required, the SEC said,  to refer shareholders to the other party’s proxy statement for information about that party’s nominees and explain that shareholders can access the other party’s proxy statement for free on the Commission’s website.  To ensure that shareholders who receive a universal proxy card will have access to information about all nominees a sufficient amount of time before the meeting, dissidents would be required to file their definitive proxy statement with the Commission by the later of 25 calendar days prior to the meeting date or five calendar days after the registrant files its definitive proxy statement.

In his dissenting statement to the SEC’s backing of the proposal Piwowar said the universal proxy initiative had been been pushed for years by special interest groups and it would increase the likelihood of proxy fights at public companies which would distract management and employees from carrying out their core mission.

He added: “The ultimate losers in these fights will be the public shareholders of these companies.  As today’s release itself notes, a universal proxy may empower specific groups of shareholders, who may use their increased influence to advance their own special interests at the expense of other shareholders.”

Under the proposed rules Piwowar said a dissident would only be required to solicit holders of shares representing a majority of the voting power of shares entitled to vote on the election of directors.  Because dissidents would not be required to solicit all shareholders, many shareholders would not receive the dissident’s proxy card, nor would they receive the dissident’s proxy statement which mean they would not see important information disclosed about those nominated.  The data indicated, he said, that the vast majority of these neglected shareholders were likely to be retail investors.

The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.

Last Updated: 30 October 2016