U.S. SEC allows investors to cherry-pick candidates in contested corporate elections

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WASHINGTON (Businesshala) – The US Securities and Exchange Commission (SEC) agreed on Wednesday to give investors who are contesting corporate board elections more freedom to choose their candidates, as the agency’s Democratic Leadership seeks to strengthen shareholder rights.

FILE PHOTO: Signage is seen at the headquarters of the US Securities and Exchange Commission (SEC) in Washington, DC, US May 12, 2021. Businesshala/Andrew Kelly/File photo

Until now, shareholders voting remotely in contested elections had to choose from a full slate of board directors nominated by management or a competing group of nominees provided by an active investor.

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The five-commissioner panel voted 4-1 to adopt the new rule.

Unlike countries such as Canada and Australia, investors in the United States could not mix and match these competing lists unless they sent a representative to vote in person at the annual meeting. The vast majority of corporate votes are cast remotely.

In 2016, two weeks before the election of former President Donald Trump, the securities regulator proposed an Obama-era reform that would give shareholders in companies more freedom to vote for their preferred candidates during contested board elections. .

This was later shelved by the agency’s then-Republican leadership, which cited a preference for loosening rules that it had barred firms from going public.

Wednesday’s rule requires a “universal” proxy card listing all duly nominated director candidates, allowing shareholders to mix and match effectively.

Investor advocates say the former system allowed corporate management to skew elections by proposing ballots with a limited number of candidates whom they preferred. Other candidates submitted by investors are often pushed to separate ballots.

Business groups approve of the status quo, calling it efficient and warn that a universal proxy card can lead to over-voting, more frequent disqualification of faulty ballots, and even shareholder confusion.

SEC Chairman Gary Gensler said the new rule would prompt investors to vote on an equal footing with those who voted by proxy.

“It makes sense that shareholders should be able to see all the candidates in one place, as they would personally. This is an important aspect of shareholder democracy,” he said.

Advocates welcomed the SEC’s decision.

“It should be called the investor choice rule,” said Amy Boras, who leads the Washington-based Council of Institutional Investors. “This small but significant improvement ensures that investors voting by proxy cards – as do the vast majority of institutional and individual investors – can vote for a combination of director nominees that they feel will serve their interests. does.”

Alad Roisman, a Republican commissioner, voted in favor of the measure, but said he would have preferred that the rule require proxy contest starters to meet certain eligibility criteria, such as ownership in the target company. Limit or holding period for the stock of the company .

“Such criteria would demonstrate that a dissident has a pecuniary stake or investment interest in the target company.”

Additional proxy advisory measures

The US market regulator also voted to propose a measure that requires more disclosure and voting options in all corporate director elections.

Subject to public consultation before it is adopted, the proposal would repeal a Trump-era rule that sought to prohibit proxy advisory firms that advise investors to vote and cast ballots on behalf of certain asset managers.

This SEC proposal will undo a condition, among other previous restrictions, that requires proxy advisory firms to make their advice available to companies that are the subject of their advice at or before the meeting.

On Wednesday, industry groups such as the National Association of Manufacturers said they were “extremely concerned” that the SEC’s proposed amendment to the 2020 proxy rule “has no new information regarding its impact on the market.”

The powerful US Chamber of Commerce criticized the move as a sign that the agency is “not serious about rooting out and eliminating conflicts of interest in the misinformation and proxy process.”

Reporting by Katanga Johnson in Washington; Editing by Dan Grebler and Matthew Lewis

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