In its efforts to enhance shareholders’ abilities to nominate and elect members to public company boards of directors, the SEC adopted changes in 2010 to the federal proxy rules found under the Securities Exchange Act of 1934. One of the adopted amendments, Rule 14a-11, would have allowed certain shareholders to submit their nominations for directors in a company’s proxy materials. However, the U.S. Court of Appeals vacated this rule after a challenge by the Business Roundtable and the U.S. Chamber of Commerce, and the SEC has decided against an appeal of this decision.
Also included in the amendments to the federal proxy rules is Rule 14a-8, which was not challenged in the lawsuit. Effective September 20, 2011, Rule 14a-8 requires companies to include shareholder proposals that would create procedures for including shareholder director nominees within the company’s proxy materials. The primary difference between the two rules is that 14a-8 allows shareholders to vote on procedural amendments that would grant greater proxy access, whereas 14a-11 would have required companies to provide direct proxy access without any shareholder vote. Thus, the end result may be similar to vacated Rule 14a-11, but requiring shareholders take the scenic route.
To be eligible to submit a proposal, the shareholder must hold at least $2,000 or 1% of the voting securities. The shareholder must also have continuously held the shares for at least one year, and continue to hold the shares through the date of either the annual or special meeting for which the proxy was solicited.
Please contact us with questions regarding these amendments.