US Proxy Reform, Delaware Steps Up

The US has taken another step forward to bring the US proxy process into line with the rest of the world. Late last week (20/02/2009) the Delaware State Bar Association received a number of proposed amendments from its Corporation Law Section Council members.

There are three key proposals on the table:

  • Section 112: Access to Proxy Solicitation Materials
  • Section 113 Proxy Reimbursement Bylaws
  • Section 213(a) “Empty Voting” amendments
Empty voting is a common phenomenon in the US and it arises when shares exchange hands after the record date, which could be as many as 60 days prior to the meeting date. The UK, by comparison has a record date of 48 hours ahead of the meeting meaning that, provided the shareholder is on the register at that point, their democratic and economic rights are tightly aligned.
The proposed revision to 213(a) provides no limit on how close the voting record date may be to the meeting, this will need to be sorted out with transfer agents and stock exchanges.  Determining who is entitled to receive proxy materials will be handled by the creation of a ‘record date for notice’,  which means that, as with the UK, the shareholders are identified for mailing purposes.
Access to proxy solicitation materials and cost reimbursement by-law changes also lay a strong foundation for improved shareholder engagement by creating a more clearly defined framework for the procedures relating to eligibility and timeliness. Undoubtedly there will be concerns in some quarters that companies will set the minimum ownership bar too high. Leading US investors have been openly critical of the threshold proposals pointing out that a 5 percent stock ownership threshold may be too high for large cap US companies as only the wealthiest investors could meet that threshold.
Delaware corporation law has a significant impact on US governance arrangements. More than 50% of all US publicly traded companies are incorporated there, 61% of Fortune 500, and as at 2007, more than 90% of all US-based IPOs originated from Delaware companies.
The Delaware courts have a close relationship with the Securities Exchange Commission (SEC)  and SEC Chairman Mary L. Schapiro recently announced (17/02/09) the appointment of Kayla Gillan as a Senior Advisor. Gillan was General Counsel for the California Public Employees’ Retirement System (CalPERS) for 16 years and so is well-versed in the challenges investors have faced in recent years in bringing US governance up to code. Gillan’s priority areas are said to include the creation of an Investor Advisory Council, reconsidering access to the proxy, and evaluating shareholder advisory votes on executive compensation.

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