Universal proxy: Sifma wants more help for shareholders

The Securities Industry and Financial Markets Association (Sifma) has urged the SEC to do more to help retail shareholders as the agency looks to revamp rules about key corporate votes.

The commission has proposed amending its proxy rules to require parties in a contested election to use universal proxy cards that would include the names of all board of director nominees. The plan would enable shareholders to vote by proxy for their preferred combination of board candidates, similar to voting in person, officials said when releasing the 243-page plan in October. ‘This change would allow shareholders through the proxy process to more fully exercise their vote for the director nominees they prefer,’ said SEC chair Mary Jo White at the time.

At present, as SEC officials wrote in October, shareholders voting by proxy in a contested election are not generally able to replicate the vote they could cast if they voted in person at a shareholder meeting because the choices available to them when voting through the proxy process are typically not the same as those available to those voting in person at a meeting.

The proposed rules would require proxy contestants to give shareholders a proxy card that includes the names of both management and dissident director nominees. This would apply to all non-exempt solicitations for contested elections other than those involving registered investment companies and business development companies. In addition, the proposed rules would require management and dissidents to give each other notice of the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents and prescribe presentation and formatting requirements for universal proxy cards.


AVOIDING CONFUSION
In a comment letter sent January 11, Sifma managing director Ellen Greene writes that the SEC should further define certain requirements ‘to avoid any shareholder confusion.’ The group’s suggested additions to the proposed rule include having what Greene calls a clear, standardized approach to distinguish between registrant nominees and dissident nominees.  

While some formatting and alphabetical order is prescribed in the plan, more specific formatting for the location of each set of nominees should be adopted, Greene says. Under the changes, solicited shareholders would receive up to two or more sets of proxy materials and two or more different proxy cards with instructions. ‘Consistency between the universal proxy cards will help avoid shareholder confusion and allow for better standards,’ she adds.

Among other things, Sifma suggests that all formatting in related documents, such as font, style and size, should be consistent. ‘We believe specific formatting rules would provide a clear presentation to the shareholders on whether a nominee supports an opposing party, as well as prescribe the treatment of the shareholder election on the proxy,’ Greene writes. ‘The limitations and flexibility in the proposed rules can only lead to greater shareholder confusion.’

The proposal would require dissidents to solicit at least a majority of the voting power of shares entitled to vote on the election of directors. But if a majority of a company’s shares are held by institutions rather than individuals – as is often the case – the proposal would, in effect, absolve a dissident from soliciting support from many retail investors, Greene says. Retail shareholders would receive notice of the availability of the dissident’s proxy materials only when they receive the registrant’s proxy materials and would be able to access this material only by ‘navigating the complex SEC website and printing out this information at their own cost,’ she adds.

Greene writes that to improve retail shareholders’ experience and place them on par with institutional investors for important company votes, the SEC should require dissidents to solicit all shareholders. ‘Moreover, we do not believe a mere reference to the availability of dissident materials on the SEC’s website provides retail investors with enough information to locate these materials: the SEC’s Edgar site is complex and difficult to navigate,’ she says.

If the commission proceeds with its proposal as written, it should take steps to give retail investors easier access to the dissident’s proxy materials, according to Sifma. The group says such steps would include:

• Enabling retail investors to obtain dissident materials without navigating the SEC website. ‘To this end, we recommend that the SEC revise the proposal to clarify that a broker-dealer can provide dissident proxy materials to a shareholder upon the shareholder’s request, and that the dissident would bear the costs of this mailing,’ Greene writes
• The SEC clarifying how shareholders can obtain a physical copy of dissident material, if the shareholder was not part of the original solicitation. For example, by the agency requiring a toll-free telephone number from which the shareholder can order paper copies of the dissident’s materials free of charge
• The SEC making it easier for retail shareholders to locate proxy materials on its website.

PROPOSED CHANGES
Highlights of the proposed reforms include the following:

• Proxy contestants would have to provide shareholders with a universal proxy card that includes the names of both management and dissident nominees, which would allow shareholders to vote by proxy for the combination of nominees of their choice. Universal proxy cards would be required in all non-exempt solicitations in contested elections
• Changing the definition of a ‘bona fide nominee’ in Rule 14a-4(d) to include a person who agrees to be named in any proxy statement relating to a company’s next meeting of shareholders at which directors are to be elected. The amendment would enable parties to include all director nominees on their universal proxy cards
• Proxy contestants would have to notify each other of their respective director candidates. A dissident would be required to give a company the names of the nominees for whom it intends to solicit proxies no later than 60 calendar days prior to the anniversary of the previous year’s annual meeting date. The company would have to give the dissident the names of the nominees for whom the company intends to solicit proxies no later than 50 calendar days before the anniversary of the previous year’s annual meeting date
• Dissidents would have to solicit shareholders representing at least a majority of the voting power of shares entitled to vote on the election of directors.