January 26, 2012

Broker Nonvotes: NYSE Deems Group of Governance Proposals to Be “Non-Routine”

Over the last few days, the NYSE has sent a notice to listed companies that brokers can no longer vote uninstructed shares on proposals that relate to a group of corporate governance matters – because the environment for the use of broker nonvotes has changed. The examples provided in the notice include: proposals to de-stagger the board of directors, majority voting in the election of directors, eliminating supermajority voting requirements, providing for the use of consents, providing rights to call a special meeting, and certain types of anti-takeover provision overrides (it seems likely that this new position applies to just these proposals – but the notice is unclear since it lists these as “examples”). The NYSE’s new position is effective immediately.

Here are some thoughts culled from this O’Melveny & Myers memo:

One practical implication of the NYSE’s new position is that companies may face increased difficulty in obtaining the necessary support for these governance proposals. This could especially impact companies seeking support for proposals requiring approval of a majority (or greater) of the shares outstanding, such as proposals seeking to amend the certificate of incorporation to implement a specified corporate governance change (for example, board declassification or the right of shareholders to act by written consent).

On these proposals, the resulting broker non-votes will have the effect of votes against the proposal. Companies seeking support for proposals that are subject to a typical default vote standard (such as the default Delaware standard of a majority of the shares represented and entitled to vote on the matter or a majority of the votes cast standard) may also feel an impact from this change because brokers who historically voted uninstructed shares in accordance with management’s recommendation (whether on an absolute or proportional basis) will no longer be permitted to exercise discretion to vote uninstructed shares in favor of these proposals. The impact will be more severe for companies with governing documents (or subject to state laws) requiring supermajority approval for revisions of the specified governance provision in their certificate of incorporation or bylaws.

Another Variation on Proxy Access

As noted in the ISS Blog: “The Furlong Fund, which has launched a proxy fight at a micro-cap firm, plans to put a proxy access proposal on the ballot. The fund, which is managed by financial analyst Daniel Rudewicz, is calling for investors to own at least a 15 percent stake for one month to be eligible to nominate candidates for up to one third of the board.

The company is Microwave Filter Co., which has a $2.3 million market cap. The Furlong Fund announced its plans in a filing and press release on Friday. The fund is seeking two seats on the company’s nine-member board.

The binding proposal is 17th access resolution that has been announced by investors for the 2012 proxy season, according to ISS data. The proposal, which has the highest ownership threshold but the shortest holding period of any resolutions so far, is the fifth “private ordering” variation on proxy access in 2012.”

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– How to Conduct Board Self-Assessments
– Study: Superior Financial Performance If Promote From Within
– Disclosure Overload & Complexity: Hidden in Plain Sight
– The Future of the SEC’s “Neither Admit Nor Deny” Enforcement Policy
– Delaware Supreme Court: H-P’s Privileged Report Can Stay Private

– Broc Romanek