Here’s one to file away for next proxy season (if your shares are NYSE-listed): The NYSE finally eliminated its 50% shareholder quorum requirement.
What does that mean?
Before the amendment to Section 312.07 of the NYSE Listed Company Manual, matters requiring shareholder approval under NYSE rules had to be approved by:
- A majority of the votes cast AND
- More than 50% of all securities entitled to vote on the proposal.
The second prong was essentially another quorum requirement, in addition to any state statute or company-specific charter or bylaw requirements. The NYSE correctly (if belatedly) concluded that the shareholder protections of its quorum rule were redundant and unnecessary.
Now, shareholder approval under NYSE rules generally requires only a majority of the votes cast.
Why does this matter?
As everyone already knows, brokers can vote uninstructed street shares only on “routine” matters, which for most companies is the ratification of its auditors. (Scroll down to the second paragraph of What’s Market? Are Non-Binding Auditor Ratification Votes “Required”?) NYSE’s rules also provide that broker non-votes are not deemed to be present for quorum purposes. Under the old two-prong NYSE rule, this could make it difficult to secure approval for relatively benign matters.
For example, a NYSE-listed company might propose the adoption of a non-controversial stock incentive plan, which would require shareholder approval under NYSE rules. But because that is a “non-routine” item under NYSE rules, brokers can’t vote their street name shares unless they receive specific shareholder voting instructions. So, if heavy broker non-votes result in less 50% of the total shares entitled to vote being voted in favor of the plan, it would not be deemed approved under NYSE rules, even if more than 50% of the votes cast were in favor.
Unfortunately, this scenario occurs more often than you might think.
Tuck this tidbit away for next proxy season since it may require that you a change your proxy statement description of the vote required to approve certain proposals (see Item 21 of Schedule 14A). It also may relieve some proxy solicitation anxiety if you have this type of proposal on your ballot.