Following the SEC’s decision not to seek a rehearing of the decision by the U.S. Court of Appeals for the District of Columbia Circuit vacating its “proxy access” rule (Rule 14a-11 under the Securities Exchange Act of 1934), the stay on the companion “private ordering” amendments to Rule 14a-8 was lifted and those amendments are now in effect. Companies can no longer exclude otherwise-qualifying shareholder proposals seeking to establish a procedure in a company’s governing documents to permit shareholder nominees to be included in the company’s future proxy statements. As with other shareholder proposals, in order to make an access proposal a shareholder need only own $2,000 of company stock and have held it continuously for one year.

While some companies may receive proxy access proposals because of their size or notoriety, or seemingly at random, others will receive them because of shareholder dissatisfaction with the company’s performance, strategic direction, compensation policies or general governance profile. We expect that larger institutional investors will focus their attention on a very small number of issuers where a relatively high level of dissatisfaction exists. Of course, the most important steps a company can take to reduce the risk of receiving a proxy access proposal (or, if one is received, it obtaining substantial support or even being approved) are the same ones that apply to other potential activism: knowing who the company’s major shareholders are and staying in touch with them, understanding their views and concerns, and considering what steps can be taken to address those concerns well before any proposal is received. Even if a company does not expect to be a target of a proposal in the near future, understanding the views of key shareholders on this important subject should be part of the agenda for any meetings it is planning with shareholders in anticipation of the 2012 proxy season.

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