Last week, the SEC approved an amendment clarifying the definition of “votes cast” in Section 312.07 of the NYSE’s Listed Company Manual (Liz blogged about the proposal last month). The amendment eliminates a disparity that previously existed in the treatment of abstentions under the laws of many states and the NYSE’s treatment of them in determining whether a particular action has been authorized by a majority of the votes cast by shareholders. This excerpt from Arnold & Porter’s memo on the amendment explains the NYSE’s action and its consequences:
The NYSE has historically advised companies that abstentions should be treated as votes cast for purposes of Section 312.07, such that a proposal would be deemed approved only if the votes in favor exceed the aggregate of the votes cast against plus abstentions (i.e., giving abstentions the effect of a vote against). The corporate laws of many states, however, including Delaware, allow companies to specify in their governing documents that votes cast for purposes of a shareholder vote include yes and no votes (but not abstentions), such that a proposal succeeds if the votes in favor exceed the votes against. Consistent with those state laws, many public companies have bylaws indicating that abstentions are not treated as votes cast.
The NYSE has amended Section 312.07 to provide that a company must determine whether a proposal has been approved by a majority of the votes cast for purposes of Section 312.07 in accordance with its own governing documents and any applicable state law, which would permit a company to disregard abstentions if its governing documents and any applicable state law so provide. In its proposal, the NYSE noted that this is consistent with Nasdaq’s approach. The NYSE also noted that the amendment will help ensure that shareholders properly understand the implications of choosing to abstain on a proposal subject to approval under NYSE rules.
– John Jenkins