In today’s marketplace, most shareholder voting is done by way of proxy. Few shareholders choose to attend shareholder meetings in person. Under the current rules of the U.S. Securities and Exchange Commission (SEC), shareholders who attend meetings in person typically receive a universal ballot, which allows shareholders to choose from a complete list of all nominees running for the board of directors. In contrast, shareholders who choose to vote by proxy in a contested election receive one set of meeting materials from the company and one set of meeting materials from the dissident, and are therefore limited to choosing from either a slate of the company’s nominees or a slate of the dissident’s nominees.
On October 26, 2016, the SEC voted to propose amendments to the proxy rules that would require parties to a contested election to use universal proxy cards. Universal proxy cards would include the names of the board of director nominees from both the company and the dissident, thus allowing the shareholder to vote by proxy for their preferred combination of board candidates. The proposed amendments may increase the ability for dissidents to achieve representation on boards of directors.
Under the proposed amendments:
- a dissident would be required to provide 60 days’ notice of its intention to solicit proxies and provide the names of its nominees;
- the company would be required to provide the names of its nominees to the dissident by giving 50 days’ notice;
- a dissident would be required to solicit shareholders representing at least a majority of the voting power of shares entitled to vote on the election of directors;
- proxy contestants would be required to refer shareholders to the other party’s proxy statement for information about the party’s nominees;
- a dissident would be required to file its definitive proxy statement with the SEC by the later of 25 days prior to the meeting date or five days after the company files its definitive proxy statement; and
- universal proxy cards would be subject to presentation and formatting requirements.
The proposed amendments do not apply to companies that fall into the following categories:
- foreign private issuers;
- investment companies; and
- business development companies.
Most Canadian companies fall into the SEC’s “foreign private issuer” category, and are therefore not subject to the SEC’s proxy rules.
Universal proxies, although not common, are permitted under Canadian law. In September 2015, the Canadian Coalition for Good Governance (CCGG) released a policy statement encouraging the use of universal proxies whenever there is a contested director election at a Canadian public company. CCGG has further advocated for amending corporate and securities laws to prescribe for the mandatory use of universal proxies. In light of the SEC’s proposed amendments, conversations about the use of universal proxies in Canada will likely increase further.
The SEC is seeking public comment on the proposed amendments until January 9, 2017.