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August 11, 2020

Universal Proxy Rules: Consensus Views

Last month, John blogged that the universal proxy proposal was on the SEC’s Reg Flex Agenda for finalizing in the near-term. Now, this letter from an informal “Universal Proxy Working Group” – consisting of 15 heavy-hitters from Wachtell, CII, Broadridge, CalSTRS, DF King, Wilson Sonsini, Trian, and others – is urging Corp Fin to consider common observations on the proposal as the Commission potentially nears the finish line. While the letter mostly supports the 2016 proposal, it makes a few suggestions. Here’s an excerpt:

– We support requiring disclosure on the universal proxy cards or in their accompanying materials (as well as in the definitive proxy statements), of the effect of: voting on the universal proxy card for more candidates than available board seats; voting on the universal proxy card for fewer candidates than available board seats; and signing and returning an otherwise unmarked universal proxy card.

– We support the Proposing Release’s presentation and formatting requirements, which advance the above objectives without compelling opposing sides to produce identical cards or co-ordinate the creation of a single universal proxy card. We believe both of these alternative models could cause unnecessary disruption for market participants accustomed to the circulation of two competing cards. The core improvement we seek is the ability of shareholders to use any proxy card they choose to vote for any combination of board nominees they prefer.

– We acknowledge that the presentation and formatting requirements described in the Proposing Release are not necessarily exhaustive of all appropriate requirements to ensure clarity, ease of use and fairness in an orderly process, and that further requirements, e.g., uniform presentation and formatting of the vote boxes beside the nominees, as well as standardized general colors for respective registrant and dissident cards, could be appropriate and helpful.

– While the Proposing Release centers on the universal proxy card, we would favorably view the SEC Staff having authority where necessary and appropriate to also facilitate the fair presentation of all nominees on vote instruction forms (VIFs) and electronic proxy voting platforms in the context of proxy contests.

– While the Proposing Release requires the dissident to solicit holders of shares representing a simple majority of outstanding voting power, the majority of the UPWG participants believe that requiring the solicitation of holders of two-thirds of outstanding voting power could also be workable,while commanding broader comfort that the threshold strikes an appropriate balance between providing the utility of the universal proxy system and precluding dissidents from capitalizing on the inclusion of dissident nominees on the registrant’s card without undertaking meaningful solicitation efforts.4Arequirement to solicit the holders of all outstanding votes would ensure that no shareholder is disenfranchised, but would not strike an appropriate balance, in the view of the majority of UPWG participants, especially taking into account the fact that dissidents generally are not reimbursed for their proxy solicitations (regardlessof whether the solicitation fails or succeeds).

Other near-term SEC rulemaking initiatives appear to have less consensus support. As reported in this blog from Cooley’s Cydney Posner, an appropriations bill recently passed by the House says that SEC funding can’t be used to finalize, implement, administer or enforce rules that would:

– Change procedural requirements or raise resubmission thresholds for shareholder proposals

– Harmonize private offering exemptions without strengthening filing requirements for exempt offerings in the same or stronger manner as proposed in 2013

– Place additional regulations on proxy advisors, per the SEC’s recent amendments

Cydney notes the possibility that these provisions could be jettisoned in the Senate’s version of the bill.

More on “What Does ESG Mean to You and Me?”

Lynn ran a guest blog last week from Rhonda Brauer about the meaning of ESG. We received several responses, including this 39-minute interview that our friend Keir Gumbs gave to Berkeley Law’s “ESG Beat.” It’s an engaging recap of how Keir came to work at Uber, what the company is doing on ESG issues, and who is driving that progress.

SEC Personnel Changes: On a Roll

Not only did we see Senate confirmations last week for two SEC Commissioners, the Commission also announced that Enforcement Co-Director Steven Peikin is stepping down, after three years on the job. Stephanie Avakian will remain as the Enforcement Division Director.

In addition, Lindsay McCord was named Chief Accountant in Corp Fin. The SEC’s press release notes that Lindsay has served as Acting Chief Accountant since March, and prior to that was a Deputy Chief Accountant in the Division.

The SEC isn’t the only organization making changes. The CII bid farewell to its leader Ken Bertsh last week, with Amy Borrus taking over as planned as Executive Director. Congratulations to both Ken and Amy!

Liz Dunshee