On May 20, 2009, the Securities and Exchange Commission, in a 3–2 vote, approved a proposed rule that would allow public company and registered investment company shareholders to nominate directors for election using the company's proxy materials. Shareholders would also have the limited ability to propose changes to the company's nomination procedures using the Rule 14a-8 proposal process.

The Commission voted to propose new Rule 14a-11. Under proposed Rule 14a-11, certain shareholders, or a group of shareholders working together, would be able to include their nominees for director in the company's proxy materials, unless the shareholders are otherwise prohibited from doing so by applicable state law or a company's charter or bylaws. Proposed Rule 14a-11 would allow shareholders to nominate directors using the company's proxy materials under the following circumstances:

  • The shareholder (or shareholder group) owns the minimum required amount of voting securities:
    • at least 1 percent of the voting securities of a large accelerated filer or a registered investment company with net assets of $700 million or more;
    • at least 3 percent of the voting securities of an accelerated filer or a registered investment company with net assets of $75 million or more but less than $700 million;
    • at least 5 percent of the voting securities of a non-accelerated filer or a registered investment company with net assets of less than $75 million;
  • The shareholder has held the required number of voting securities for at least one year;
  • The shareholder certifies its intent to hold its stock through the date of the meeting; and
  • The shareholder certifies that it is not holding its stock for the purpose of changing control of the company or to gain more than minority representation on the board of directors.

A shareholder would be able to nominate no more than one shareholder nominee, or the number of nominees that represents up to 25 percent of the company's board of directors, whichever is greater. The nominees must be independent under the rules of the securities exchange on which the company's stock is listed, and the nominating shareholder may not have any direct or indirect agreement with the company regarding the nomination of the nominees. The nominating shareholder would be required to file with the Commission new Schedule 14N certifying that it and its nominees meet the requirements of Rule 14a-11.

The Commission also voted to propose an amendment to Rule 14a-8 that would require a company to include in its proxy materials shareholder proposals to amend, or request an amendment to, the provisions of a company's charter or bylaws governing director nomination procedures or director nomination disclosure provisions. This rule change will narrow the current exclusion from a company's proxy materials of shareholder proposals that "relate to an election."

Public comments on these proposed rules must be received by the Commission within 60 days after their publication in the Federal Register. We expect that the full text of these proposed rules will appear in the Federal Register before the end of May.