Key issues: Proxy access

Proxy access allows defined shareholders to nominate their own director candidates against those nominated by the company. The original proxy access rule under the Dodd-Frank Act (Rule 14a-11) was struck down by a federal court in 2011. Subsequently, the SEC lifted its suspension of Rule 14a-8, which allowed for proxy access on a company-by-company basis (also known as “private ordering”).

Shareholders currently can gain access to the proxy statement to nominate their own directors through a two-phase process. A shareholder with at least $2,000 in company stock held for at least one year to submit a proposal to amend the company bylaws to allow for direct proxy access. If approved, shareholders can submit director slates to be included in the proxy statement the following year.

In the first year of shareholder proxy access through "private ordering" two such proposals received majority shareholder support in 2012, with one company adopting it for 2013. Overall, there were 23 proxy access shareholder proposals filed in 2012, according to the proxy advisory firm Institutional Shareholder Services. Most of the proposals call for investors to own 1% of company stock for at least two years or even one year.

However, in 2012 the SEC staff granted six no-action exemptions, conveying that the staff will not recommend enforcement action be taken by the Commission against the registrant for excluding the shareholder proposal from the proxy statement. This allowed the six companies to exclude from their proxy statements the non-binding shareholder proposals.

What directors should do:

  • Review company bylaws and consider the need for more robust advance notice mechanisms and conditions for shareholder nominations.
  • Identify any internal issues relating to director nominations or board composition, including reviewing the company’s nominating committee charter, bylaws relating to director qualifications, rules for the conduct of shareholder meetings, and the policy on director age and term limits.
  • Ensure that there is regular shareholder engagement to identify and address external concerns related to director nominations.

 

PwC perspective

"In the second year of private ordering, a company should evaluate its ownership profile for the likelihood of shareholder proxy access proposals. It will also want to be proactive in its outreach to large shareholders on critical issues."
— Mary Ann Cloyd, Leader, Center for Board Governance

Other key issues

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