The U.S. Securities and Exchange Commission (SEC) yesterday announced that it is amending federal proxy rules in order to "facilitate the effective exercise of shareholders' traditional state law rights to nominate and elect directors to company boards of directors." Specifically, a new proxy rule (Rule 14a-11 under the Securities Exchange Act of 1934) will, under certain circumstances, require companies to include shareholder nominees for director in the company's proxy materials. An ownership threshold of 3% of the voting power based on securities that are entitled to be voted, held for at least three years, will be required for a nominating shareholder or group to rely on Rule 14a-11. Further, amendments to Rule 14a-8 will narrow an exception that currently permits companies to exclude shareholder proposals that relate to elections. The final rules take into account public response to the draft proposals released by the SEC in July 2009 and will generally be effective 60 days after their publication in the Federal Register.
In describing the need for the new rules, SEC Chairman Mary Schapiro stated that
[a]s a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own...Nominating a director candidate is not the same as electing a candidate to the board. I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfill the responsibilities of serving as a director. The critical point is that shareholders have the ability to make this choice.
Notable to Canadian companies, the amended rules will apply to foreign issuers that are otherwise subject to U.S. proxy rules unless the applicable foreign law prohibits shareholders from nominating director candidates.