The Securities and Exchange Commission was asked to amend its rules for contested corporate board elections, allowing shareholders to more easily “split the ticket” and vote for any combination of management and dissident nominees, with a Petition for Rulemaking submitted by the Council of Institutional Investors on Wednesday morning.
Currently, shareholders have “extremely limited ability to vote nominees from different slates,” says CII, a nonprofit association of pension funds whose members' assets exceed $3 trillion. That is because the SEC's “bona fide nominee” rule, adopted in 1966, requires opposing sides in a proxy contest to obtain the consent of opposing candidates before they can list them. Usually at least one side refuses to give consent and both sides distribute separate proxy cards listing only their nominees. Shareholders can vote using only one card. If they want to vote for candidates from both slate they have to vote in person at the annual meeting, which can be impractical and costly.
Concerned about this lack of flexibility, CII's general membership voted on Sept. 27, 2013, to amend its Corporate Governance Policies to support universal proxy cards. The addition to CII's policies states: “To facilitate the shareholder voting franchise, the opposing sides engaged in a contested election should utilize a proxy card naming all management-nominees and all shareholder-proponent nominees, providing every nominee equal prominence on the proxy card.”
The SEC's 1992 “short slate” rule provides a carve-out from the consent requirement when a shareholder nominates candidates representing a minority of the board. In those cases, dissidents can list their preferred combination of shareholder and management nominees.
“But the short slate rule does not allow for full ‘mix and match' capability,” a statement from CII says. If adopted, the reform would “simply give investors voting by proxy the same practical ability to vote their shares for their preferr
ed mix of nominees that they would have if they attend a shareholder meeting in person.” Any additional costs to participants in proxy contest would be minimal.
“Amending the rules so that each side in a contest can distribute ‘universal' proxy cards listing all director nominees would give shareholders freedom of choice to vote for any candidate, regardless of his or her slate,” said CII Executive Director Ann Yerger. “It would also ensure a fairer, less confusing and less cumbersome voting process.”
The letter to the SEC points out that its own Investor Advisory Committee, established under the Dodd-Frank Act to advise it on regulatory priorities adopted a recommendation that it explore providing proxy contestants with the option, but not the obligation, to use Universal Ballots in connection with short slate director nominations.