Proxy Access Proposals: What Can We Expect to See Next Year?
(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)
August 4, 2011
In “Will Investors File Proxy Access Proposals in 2012?”, in the RiskMetrics Blog, Ted Allen analyzes the possible impact of the D.C. Circuit Court’s ruling (discussed in this prior post) that struck down the SEC’s proxy access rule, Rule 14a-11. Rule 14a-11 grants to large shareholders of public companies the right to nominate directors and have the nominees included in management’s proxy statement.
Allen points out that the SEC may lift its stay on the related amendment to Rule 14a-8, which would allow shareholders to introduce proxy access proposals in 2012. He reports that there may not be a flood of proxy access proposals next year, due to institutional investors’ mixed feelings on these proposals and some complex dynamics:
Several investors said this week they are looking into submitting access proposals next season . . . . So far, it appears that the activist investor community is undecided about whether to file access proposals in 2012 and how many companies to target. There is a concern that the filing of dozens of access resolutions next season might bolster corporate arguments that the SEC should refrain from adopting a new marketwide access rule and just allow private ordering to work. There also is a concern that low support levels for poorly targeted proposals would be cited by corporate critics as evidence that most shareholders don't want access. Conversely, some activists argue that strong shareholder votes for access in 2012 could help prod the resource-stretched SEC to prepare a revised access rule. If activists do file access proposals next season, it appears that they may focus on a few high-profile companies with well-known governance issues.
One interesting issue is whether the shareholder access proposals would likely be votes on binding amendments to the bylaws or non-binding precatory votes that are merely recommendations to the board. Allen states: “Investors could file binding or non-binding resolutions, but some states require higher ownership thresholds for binding bylaw proposals.” Individual companies also may have bylaws that would require a supermajority vote by shareholders. Allen points to three examples of proxy access proposals in 2007, before the SEC stopped allowing such proposals under Rule 14a-8:
- A binding access proposal involving Hewlett-Packard Corporation that won a high percentage of approval but did not pass. This proposal would have required a two-thirds positive vote under H-P’s bylaws.
- Non-binding access proposals involving UnitedHealth Group, Inc. and Cryo-Cell International, Inc. The UnitedHealth proposal won a high percentage of approval but did not pass; the Cryo-Cell proposal passed.
Therefore, if the SEC lifts its stay on the amendment to Rule 14a-8, the resulting proposals are likely to include a mix of binding and non-binding proposals.
Cheat Sheet Updated for Changes in Dodd-Frank Rulemaking Timetable
As Broc Romanek pointed out in TheCorporateCounsel.net Blog, the SEC has modified its timetable for rulemaking under the Dodd-Frank Act. The ON Securities Cheat Sheet has been updated to include the additional dates. Most of the changes consist of adding a proposed time frame for final rules that have not yet been adopted, in many cases giving a range of January to June 2012. This makes it very unlikely that some of these rules, including the disclosure of pay relative to performance and the ratio of CEO pay to median non-CEO employee pay, will apply to the 2012 proxy season.
Stock Market Woes? Blame the Blue Guys!
We’re all still reeling from the stock market plunge this week so far. In his CNN show this evening, Piers Morgan showed footage of the New York Stock Exchange’s opening bell being rung on July 29 by . . . the Smurfs! He points out that, since that time, the Dow Jones Industrial Average has plunged by almost 1,000 points. Obviously, there must be a connection.