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September 9, 2010

Proxy Access: First Shareholder Announces Intent to Use New Rules

Yesterday, Ted Allen blogged the following in the ISS “Insight” Blog“:

The SEC’s new proxy access rule won’t take effect until November, but an investor, Discovery Equity Partners, already has announced its intent to use the rule to nominate two board candidates at Tier Technologies in this amended Schedule 13D. In a Sept. 7 letter to the company’s board, Michael Murphy, a managing partner at Discovery, said it intended to use SEC Rule 14a-11 to nominate up to two board candidates at the company’s 2011 meeting.

Reston, Virginia-based Tier Technologies provides transaction-processing services and software to federal, state, and local agencies. Given its current market capitalization, the company presumably would not be exempt from the new access rule. As of Sept. 8, the company had a $90.6 million market cap; the new SEC rule has a three-year phase-in period for companies with less than $75 million in public float.

Chicago-based Discovery and affiliates, which have a 13.5 percent stake, has been active at Tier Technologies in the past. In 2009, Discovery waged a proxy contest to elect two candidates. Management nominated just seven candidates for the nine open seats, so the dissident’s two nominees were elected.

In January 2010, Discovery said it would nominate three candidates, but the company announced an agreement with the investor in March. Under that settlement, the company reduced its board to seven directors, separated the roles of chairman and CEO, and provided reimbursement to Discovery for the 2009 proxy fight. In exchange, Discovery agreed not to nominate any candidates at the 2010 meeting and to support management. In August, the company named a new CEO, Alex Hart, to replace former CEO Ronald Rossetti, who stepped down in June.

Proxy Access: The Latest Reactions to the New Rules

Ted Allen also does a good job in this blog illustrating some of the views on both sides of the debate over whether proxy access is a good thing and whether its adopted formula will work. In addition, this Agenda article also touches on these points, including some of the math involved as noted in this excerpt:

Shareholder advocates had mixed reactions to the rule. While they were largely disappointed with the 3%-for-three-years restriction, they were happy to even be granted proxy access at all. It will be challenging for activist investors such as public pension funds to meet the threshold requirement, explains Amy Borrus, deputy director at the Council of Institutional Investors. However, she says she doesn’t think it will be impossible. Ricardo Duran, a spokesman at Calstrs, says that while it will be difficult to meet the 3% holding for three years in the large-cap segment of its portfolio, “Calstrs officials feel that it can be achieved.”

In an Aug. 12 letter to the SEC, several state pension funds illustrate the difficulties of meeting the 3% threshold, particularly with large-cap companies. The funds claim it would take 20 of the largest public pension funds that have stock in Goldman Sachs Group to hold in aggregate 2.88% of the company’s securities. What’s more, Calpers has released prior data showing the 10 largest public pension funds together hold less than a 2.5% stake at Bank of America, Microsoft, IBM and Exxon Mobil.

Poll: How Many Shareholders Will Try Proxy Access During the Next Year?

Please take a moment to participate in this anonymous poll regarding how many shareholders will try to use proxy access over the next year:

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– Broc Romanek