Improving the proxy process remains front and center at the SEC and continues to garner media headlines. A recent high-profile example was this past proxy season’s focus on proxy access shareholder proposals, including the SEC’s Whole Foods flip flop and its suspension of Rule 14a-8(i)(9) “direct conflict” no-action letters. (See this Doug’s Note.)
Now comes this week’s bombshell from SEC Chair Mary Jo White in a speech at the Society of Corporate Secretaries and Governance Professionals National Conference in Chicago:
“I have asked the staff to bring appropriate rulemaking recommendations before the Commission on universal proxy ballots.”
What is a universal proxy ballot?
A universal proxy ballot is a single proxy card that lists both management’s and a shareholder proponent’s director nominees in a contested election and allows shareholders to vote for a mix of those nominees as they see fit.
Under the current system, state laws and proxy rules combine to dictate separate proxy ballots from management and proponents, requiring shareholders to vote for either management’s slate or the proponent’s slate. Shareholder activists tend to believe that this stacks the deck in favor of management’s nominees, particularly where the proponent wants to offer less than a full slate, sometimes known as a “short slate.” And yet, while the universal proxy ballot concept has been around for at least 25 years, it has never gotten traction for a variety of reasons.
This observation from Chair White indicates, however, that the momentum may be shifting:
“Providing shareholders with the same voting rights that they would have if they were present at the meeting and eliminating procedural obstacles should be a shared goal of both companies and shareholders.”
In her speech, Chair White focused on several proxy-related issues in addition to universal proxy ballots, including preliminary voting result dissemination, the handling of “unelected directors” and the staff’s ongoing evaluation of its shareholder proposal processes. That focus highlights the SEC’s continuing, and perhaps expanding, interest in the entire shareholder voting process and may portend more widespread changes to come.
Chair White correctly points out that “if the Commission were to revise the proxy rules to implement a universal proxy ballot, the ‘devil would be in the details.’” She went on to identify the following potential questions:
- When it would be used?
- Would it be optional or mandatory and under what circumstances?
- Would proponents be subject to eligibility requirements?
- What would the ballot look like?
- Must both sides use identical ballots?
No doubt other questions will arise as this rulemaking initiative moves forward and commentators weigh in.
Of course, this is still in a very preliminary stage, meaning that the odds and timing of an actual rule proposal for Commissioner consideration are difficult to calculate at this point. Nevertheless, rulemaking appears to be a real possibility, at least for the moment.