Corporate Update

SEC Adopts Mandatory Proxy Access Rules

On August 25, 2010, the Securities and Exchange Commission (the “SEC”) adopted rules requiring public companies to include director nominees of significant, long-term shareholders in the company’s proxy materials. According to the SEC, this mandatory “proxy access” is intended to “facilitate the ability of shareholders to exercise their traditional rights under state law to nominate and elect members to company boards of directors.” The SEC approved the new rules by a vote of 3 to 2, with Commissioners Casey and Paredes dissenting.

The question of shareholder proxy access has been a topic of debate among the members of the investment community for many years. The SEC proposed amendments to the proxy rules relating to proxy access three times in the last decade (2003, 2007 and 2009). In addition to other concerns, the authority of the SEC to amend the proxy rules was recently raised as an issue. The recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) amended Section 14 of the Exchange Act of 1934, as amended (the “Exchange Act”) thereby authorizing, but not requiring, the SEC to make amendments to the federal proxy rules permitting proxy access. The adopting release is available here.

Highlights of the rule changes include:

• Providing an annual 30-day window during which eligible shareholders or shareholder groups may submit director nominations for inclusion in a company’s proxy materials;
  
• Requiring the inclusion in a company’s proxy materials of shareholder nominees constituting up to 25% of the board;
  
• Permitting shareholders (or shareholder groups) holding securities constituting at least 3% of the company’s voting power continuously for three years to make such nominations; and
  
• Requiring public companies to include in their proxy materials shareholder proposals seeking to establish a procedure in the company’s governing documents for the inclusion of shareholder nominees in the company’s proxy materials.

To view the full update, please click here.