On Feb. 26, 2009, the NYSE resubmitted Rule 452 amendments to the SEC. If approved, the rule changes will eliminate uninstructed broker votes in uncontested director elections. It is expected that the SEC will approve the Rule 452 amendments in time for the 2010 proxy season. This development is significant for activists and Just Vote No campaigns because revised Rule 452 would prohibit brokers from voting uninstructed shares for management’s director nominees and thereby enhance Just Vote No votes.
Uncontested Director Elections, Just Vote No Campaigns and Routine Matters
Historically, the NYSE considered Just Vote No campaigns to be an uncontested director election and therefore a routine matter within Rule 452. This interpretation allowed brokers to vote uninstructed shares which invariably favored management’s nominees. In 2006, the NYSE proposed revisions to Rule 452 to recognize that all director elections, even uncontested elections, were non-routine matters and bar uninstructed broker votes. Despite NYSE support, the SEC did not take action on the Rule 452 amendments. Critics claimed that the amendments would increase the cost of proxy solicitations because attaining a quorum would be more difficult without uninstructed broker votes. In addition, many companies rely on broker votes to satisfy recently adopted majority vote requirements for directors. Despite these concerns, an NYSE working group recommended the Rule 452 changes as a necessary cost of better corporate governance and transparency in the election process.
SEC Approval Likely
Based on statements by certain of the Commissioners, we believe it likely that the new rule will be approved. For example, in a Feb. 18, 2009 speech, SEC Commissioner Elisse Walter said the following in support of a revised Rule 452:
Another area where I believe the Commission can act to increase shareholder participation concerns the NYSE’s proposed amendments to Rule 452 that would eliminate uninstructed broker votes from director elections. As you probably know, the Exchange’s request has been held in abeyance at the Commission for over two years. I believe we should move forward and determine whether to adopt these amendments.
The NYSE proposal is subject to public notice and comment. The public comment period ends March 27, 2009. According to the proposal, the Rule changes would become effective Jan. 1, 2010, assuming SEC approval on or before Aug. 31, 2009.