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E-MailMary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent statement at an open meeting of the SEC, available here. The views expressed in this post are those of Ms. White and do not necessarily reflect those of the Securities and Exchange Commission or its staff. Related research from the Program on Corporate Governance includes Universal Proxies by Scott Hirst (discussed on the Forum here).
Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on October 26, 2016, under the Government in the Sunshine Act. Today, the Commission will consider two recommendations from the Division of Corporation Finance. First, the Commission will consider a recommendation to propose changes to our proxy rules to require the use of universal proxy cards in contested director elections. Second, the Commission will consider recommendations for final rules to further facilitate companies’ access to capital through intrastate and regional securities offerings, with accompanying investor protections provided by state and federal law.
We will take two separate votes on the recommendations following each of the staff’s presentations and Commissioner comments.
Universal Proxy
Our first agenda item is a recommendation from the Division of Corporation Finance to propose amendments to the federal proxy rules to provide shareholders who vote by proxy in contested elections the ability to more easily pick among all candidates on the ballot, just as shareholders who attend shareholder meetings can do. Today, in furtherance of that objective, we will consider a proposal to require the use of a universal proxy card in all contested director elections.
The right of shareholders to elect directors is a fundamental element of corporate ownership. The right to vote is obviously of particular importance when shareholders are deciding among director candidates in a contested election. Today, few shareholders of public companies attend a registrant’s annual meeting to cast an in-person vote for the election of directors. Instead, the primary means for shareholders to learn about matters to be decided at the meeting, and to vote on the election of directors, is through the proxy process.
Section 14 of the Exchange Act authorizes the Commission to establish rules governing the solicitation of proxies. Congress intended that the Commission’s proxy rules facilitate the “fair corporate suffrage” available to shareholders under state corporate law. [1] The proposal we are considering today is driven by that principle, and by the guiding principle that the proxy voting process should replicate to the greatest extent possible the vote that a shareholder could achieve in person at a shareholder meeting.
Today, in an election contest, because of the way state law and the proxy rules operate, there is a stark difference between voting by proxy and voting in person. Shareholders voting by proxy generally must choose between competing slates of directors presented on either the registrant’s or a dissident’s proxy card, and cannot freely select from among individual nominees from both slates. By contrast, shareholders can choose individual nominees if they vote in person. The proposal before us today would eliminate this disparity in a straightforward, efficient manner.
Specifically, the recommended rule changes would require proxy contestants to provide shareholders with a universal proxy card that includes the names of both registrant and dissident nominees. These changes would allow shareholders to choose individual director nominees whom they believe represent the best mix of skills and qualifications to run their company, without being needlessly confined to an “all or nothing” vote on slates of nominees chosen by management or the dissident.
The recommended amendments would require registrants and dissidents to provide each other with notice of the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents, and prescribe presentation and formatting requirements for universal proxy cards. These amendments, in my view, would strike the appropriate balance to further our goals for improving the proxy voting process, treating registrants and dissidents in an equitable manner while continuing to require dissidents to independently advance their own solicitations.
Consistent with the goal of facilitating shareholder voting in director elections, we are also considering additional proposed amendments to the proxy rules that would apply to all director elections. These changes would ensure that proxy cards clearly specify the applicable shareholder voting options in director elections and that proxy statements disclose the effect of a shareholder decision to withhold their vote.
Taken together, the proposed rule changes will promote fundamental fairness and efficiency in the voting process and support shareholder rights. At the most basic level, these goals mean that the differences between proxy voting and in‑person voting should be minimized for shareholders, both institutional and retail. Of course, doing so requires a number of logistical and technical choices that are part of the proposal. I especially look forward to receiving comments on those aspects of the proposal and whether our regulatory objective can be better met through other choices on how the mechanics of the process are executed.
As always, the list of those I would like to thank for their work on this rule proposal is long and reflects the many staff members who have made contributions to the proposed rulemaking. Specifically, I would like to thank Keith Higgins, our Director of Corporation Finance, Michele Anderson, Christina Chalk, Steve Hearne, Tiffany Posil, David Frederickson, Ted Yu, Laurie Abbott, Ray Be, Raquel Fox, Perry Hindin, David Orlic, Jenny Riegel and Michael Seaman in the Division of Corporation Finance; Annie Small, Bryant Morris, Tracey Hardin, Daniel Matro, Dorothy McCuaig, Connor Raso and Cathy Ahn in the Office of the General Counsel; Mark Flannery, Scott Bauguess, Vanessa Countryman, Hari Phatak, Tara Bhandari, John Cook, Mattias Nilsson, and Sze Wing Wong, in the Division of Economic and Risk Analysis; Eugene Hsia and Sharon Lawson from the Division of Trading and Markets; and David Grim, Diane Blizzard, Doug Scheidt, Sarah ten Siethoff, Jim Curtis, Matthew DeLesDernier, Michael Pawluk and Melissa Roverts from the Division of Investment Management.
I would also like to thank my fellow Commissioners and their counsel for their work on these rule proposals.
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The complete publication, including footnotes, is available here.
Endnotes
1H. R. Rep. No. 73-1383, 2d Sess., at 13-14 (1934).(go back)
