Proxy Access: A New Era for Shareholder-Board Relations

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Aug 26, 2010, 12:24 ET

NEW YORK, Aug. 26 /PRNewswire/ -- The Securities and Exchange Commission's 3-2 vote to grant shareholders "proxy access" represents significant progress for shareholder rights advocates and marks further movement toward a shareholder-centric corporate governance model in the United States, The Conference Board Governance Center said in a statement.

After many years of debate, the SEC was able to act quickly due to authority granted under the Dodd-Frank Wall Street Reform and Consumer Protection Act. "Now that the SEC has made its determination on proxy access, it is incumbent on boards and shareholders to understand the implications for their companies," said R. William Ide, III, chairman of The Conference Board Governance Center Advisory Board. "However, this action can also be seen as a symptom of the greater need for more meaningful dialogue among companies, shareholders and boards of directors."

"This is a substantial development that must be contextualized within a number of other recent governance developments that have changed the face of corporate elections," said Paul DeNicola, director of The Conference Board Governance Center and Directors' Institute. "The loss of the broker discretionary vote, a movement toward majority voting, the trend to declassify boards, and now proxy access, provide opportunities to both long-term shareholders as well as investors with a solely short-term focus. As a result, board members need to continue to enhance the ways in which they communicate with their investors – or face the very real consequence of being replaced."

The SEC's proxy access rulemaking creates a process for a shareholder or group of shareholders to nominate directors and have those nominees included in a company's proxy materials if they meet certain requirements, such as beneficially owning individually or in the aggregate 3 percent of the company's shares for at least three years. The rulemaking centers on the new Rule 14a-11, which actually grants shareholders access to the proxy, and amendments to Rule 14a-8, which removes most company exclusions of shareholder proposals from the proxy. Rule 14a-11 is subject to state and foreign laws regarding the election of directors. Under the ruling, smaller reporting companies do not have to abide by the new and amended rules for three years.

In order for shareholders to use Rule 14a-11, they must adhere to the following requirements:

A nominating shareholder or group must have at least 3 percent of the voting power of company securities on the meeting date.
A nominating shareholder or group must have held those securities for at least three years from the date of the request to use Rule 14a-11.
The shareholder or group seeking to use Rule 14a-11 must notify the company no earlier than 150 days before the anniversary of the annual public meeting and no later than 120 days before that date.
A company does not have to include a shareholder director nominee slate that would replace more than 25 percent of the current board.
The shareholder or group must file a Schedule 14N with the company and the SEC electronically on the date it notifies the company of its intent to use Rule 14a-11. The Schedule 14N includes the shareholder or group's amount of voting power, biographical information about the nominee slate, whether or not the candidates satisfy the company's director qualifications and a statement supporting the candidates.

About The Conference Board Governance Center

The Conference Board Governance Center brings together a distinguished group of senior corporate executives from leading world-class companies and influential institutional investors in a non-adversarial setting. In small groups of prominent senior executives, all discussions are confidential, enabling a free-flowing exchange of ideas and effective networking. This highly unique forum allows industry leaders to debate, develop, and advance innovative governance practices, and to drive landmark research in corporate governance.

About The Conference Board

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.

SOURCE The Conference Board