“This proposal represents nearly seven years of debate about whether the federal proxy rules should support — or stand in the way of — shareholders exercising their fundamental right to nominate directors,” said SEC Chairman Mary Schapiro. “Today marks the first step toward finally concluding that debate. While I recognize that there are passionate views on both sides of this issue, I hope that all interested parties will participate in the Commission’s comment process. I am confident that the final rules we adopt will be better because of these comments.”
Under the proposals, shareholders, subject to a number of conditions, will be able to nominate their own directors to a shareholder meeting and have their nominees included on the same proxy card as the issuer, in other words creating a Universal Ballot. Shareholders will also have the ability to use shareholder proposals to amend a company’s nomination procedures or disclosures about elections. The only proviso is that the proposals do not conflict with state law or SEC rules.
The proposed new Exchange Act Rule 14a-11 has a number of pre-conditions that shareholders need to meet. In order for them to be be eligible to have their nominee included on the proxy:
- They own at least 1 percent of the voting securities of a “large accelerated filer” (a company with a worldwide market value of $700 million or more) or of a registered investment company with net assets of $700 million or more.
- They own at least 3 percent of the voting securities of an “accelerated filer” (a company with a worldwide market value of $75 million or more but less than $700 million), or of a registered investment company with net assets of $75 million or more but less than $700 million.
- They own at least 5 percent of the voting securities of a non-accelerated filer (a company with a worldwide market value of less than $75 million) or of a registered investment company with net assets of less than $75 million.
To address the concerns of shareholders who may not be able to meet the threshold requirements, shareholders will be able to aggregate holdings. There are also three further requirements which will find favour with long term shareholders worried about short term predators:
- Shareholders would be required to have held their shares for at least one year.
- Shareholders would be required to sign a statement declaring their intent to continue to own their shares through the annual meeting at which directors are elected.
- Shareholders would be required to certify that they are not holding their stock for the purpose of changing control of the company, or to gain more than minority representation on the board of directors.
The proposed amendments for submitting election related proposals will be covered in Exchange Act Rule 14a-8(i)(8). Stock ownership rules will continue to apply namely that a shareholder must have held at least $2,000 in market value (or 1 percent, whichever is less) of the company’s securities entitled to be voted on the proposal at the meeting continuously for one year prior to submitting the proposal.
The proposed rules will be open for 60 days of public comments after their publication in the Federal Register.