The Securities and Exchange Commission has adopted changes to the federal proxy access and other rules to facilitate the rights of shareholders to nominate directors to a company's board.
The new rules require companies to include the nominees of significant, long-term shareholders in their proxy materials, alongside the nominees of management. This "proxy access" is designed to facilitate the ability of shareholders to exercise their traditional rights under state law to nominate and elect members to company boards of directors.
Under the rules, shareholders will be eligible to have their nominees included in the proxy materials if they own at least 3 percent of the company's shares continuously for at least the prior three years.
"As a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own," said SEC Chairman Mary L. Schapiro. "Nominating a director candidate is not the same as electing a candidate to the board. I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfill the responsibilities of serving as a director. The critical point is that shareholders have the ability to make this choice."
The SEC's approval of the new measures follows enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which provided the SEC with explicit authority to make rules addressing shareholder access to company proxy materials.
Under the new rules, shareholders who otherwise are provided the opportunity to nominate directors at a shareholder meeting under applicable state or foreign law would be able to have their nominees included in the company proxy materials sent to all shareholders. Shareholders also have the ability to use the shareholder proposal process to establish procedures for the inclusion of shareholder director nominations in company proxy materials.
Application of the new access rules to the smallest public companies those that are defined as "smaller reporting companies" under SEC rules will be deferred for three years.
Generally, the new rules will become effective 60 days after their publication in the Federal Register.
The Social Investment Forum applauded the action taken by Schapiro and the SEC staff for their work on proxy access.
The Social Investment Forum and its members have been advocating for a federal proxy access rule since our founding in 1981, said SIF CEO Lisa Woll in a statement. Universal proxy access is a fundamental shareholder right enjoyed in most developed nations around the world, so we are very happy to see the United States achieve parity on this critical market mechanism.
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