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SEC Proposes Expanded Proxy Access

The Securities and Exchange Commission approved on May 20, by a 3-2 vote, proposed rules expanding stockholder proxy access rights.  The proposals have a 60-day comment period and the SEC expects to have final rules in place for the 2010 proxy season.  The new federal rules, if adopted, would trump recent Delaware legislation relating to stockholder proxy access.

The full text of the new rules has not been released by the SEC.  The SEC release indicated that the following provisions would be included:

  • Stockholders (or groups of stockholders) owning a specified percentage of the company’s shares for one year could use the company’s proxy card and its proxy statement to nominate directors.  The percentages are 1% for large accelerated filers ($700 million market cap), 3% for accelerated filers ($75 million market cap) and 5% for non-accelerated filers (market cap less than $75 million).
  • Stockholders could nominate the greater of one nominee or up to 25% of the board.  For example, if a company has a classified board of nine members, the stockholder could nominate up to two persons at an annual election of three directors.
  • If multiple stockholders nominate directors, the SEC proposes a first in – first on rule.
  • Nominating stockholders must provide at least 120 days’ notice before the first anniversary of the prior annual meeting proxy mailing, subject to company advance notice bylaw provisions.
  • The stockholder nominee must meet state law and stock exchange independence standards, and must certify that the nomination is not intended to result in a change in control or result in more than minority representation on the board.
  • The SEC also proposed revisions to stockholder proposal rules which would allow greater includability of proposals that would amend a company’s governing documents regarding election procedures.

The SEC had proposed several versions of proxy access rules over the past seven years.  The current version of the proxy access rules represent the most “inclusion friendly” of the proposals.  A few companies have previously adopted proxy access bylaws; however, those bylaws typically require a 5% ownership, the right to elect up to one-third of the directors to be elected at each election, and certain no-takeover requirements for at least one year following the election.