In November 2021, the SEC adopted final rules that will require parties in a contested corporate director election to use universal proxy cards for shareholder meetings held after August 31, 2022. Under the new rules, both the company and any shareholder seeking to elect a slate of director candidates at a shareholder meeting will be required to use proxy cards that include the names of all director nominees presented for election at the meeting. This will give shareholders the ability to vote by proxy for their preferred mix of company and dissident nominees, the same way they can if voting in person at the meeting.

Under the current proxy voting regime, neither the company nor the dissident may include the other party’s nominees on its respective proxy card without the consent of the nominees, which rarely happens. As a result, in an election contest, shareholders typically receive two proxy cards: one from the company listing only the names of the company’s nominees and one from the dissident listing only the dissident’s slate. Therefore, shareholders voting by proxy in an election contest must choose between the company’s and dissident’s recommended nominees, often precluding them from voting for a desired mix of candidates from both slates unless they attend the meeting in person where they can split their vote as desired by ballot. The new universal proxy rules will allow shareholders to vote by proxy for a mix of all company and dissident candidates without attending the meeting in person.

The universal proxy regime is a more democratic path for shareholders to obtain board representation, but it should not be confused with the existing Rule 14a-8 shareholder proposal and “proxy access” regimes. Currently, shareholders may file proposals, often focusing on environmental, corporate governance, and social issues, for inclusion in the proxy statement using Rule 14a-8. They also can propose competing slates of director candidates under “proxy access” bylaws as long as they satisfy certain minimum ownership and holding period thresholds and other procedural requirements.

Unlike Rule 14a-8 proposals and “proxy access,” however, the universal proxy rules will not give a dissident seeking board representation access to the company’s proxy card and will not eliminate the need for the dissident to expend its own time and resources on a solicitation to have its slate elected. In actuality, the new rules will require a dissident to comply with specific notification requirements, file its own proxy statement with the SEC, and solicit holders of at least 67 percent of the voting power of shares entitled to vote in the election. Simply put, there will be no “free-riding” of the company’s solicitation materials under the new rules.

It is premature to make broad predictions about whether universal proxies will favor one party over the other party or will result in any material increase or decrease in mixed boards or changes in board control. Nevertheless, placing shareholders who vote in person or by proxy on an equal footing represents a crucial step in further democratizing the shareholder electoral process while preserving the shareholders’ ability to hold company management accountable as stewards of their investment.

Ron S. Berenblat
Partner, Olshan Frome Wolosky LLP