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2015 Roundtable to Examine Proxy Voting

For the second time in little more than a year, the SEC has scheduled a public discussion on proxy voting. The upcoming roundtable is slated to examine a recommendation the SEC’s Investor Advisory Committee made in 2013 asking for revised rules for proxy ballots. The recommendation’s supporters believe the rule change will make it easier for shareholders to split their tickets among board candidates backed by management and shareholders.

The SEC plans to hold a public roundtable on proxy issues in early 2015.

The event will mark the second time in little more than a year that the market regulator solicits views on a perennially contentious issue. Over the past 25 to 30 years, as shareholders have become more assertive exercising their rights in director elections and votes on executive compensation plans, the debate has intensified about the manner in which SEC rules can be used to open up or restrict shareholders’ influence.

The roundtable is being held to examine a recommendation the SEC’s Investor Advisory Committee (IAC) made in 2013 asking for revised rules for proxy ballots. The recommendation’s supporters believe it would make it easier for investors to vote for both management-backed board candidates and independent nominees.

“This is an important issue for investors and other market participants, and is also – like so many other parts of the proxy system – tied to a range of other critical issues,” according to the transcript of SEC Chair Mary Jo White’s statement to the IAC’s October 9, 2014, meeting. White offered no additional information about issues that might on the roundtable agenda, and a spokeswoman for the SEC declined to comment.

The IAC wants the SEC to amend Rule 14a-4(d)(1) of the Securities Exchange Act of 1934 and allow the use of what is called a universal proxy card. The revised card would list all director nominees on a single ballot. U.S. companies typically print a management-backed slate of directors on one proxy card and separate cards with shareholder-sponsored nominees. Shareholders voting via the proxy card generally must vote for either the management or the dissident slate and can’t vote for combinations of nominees from separate cards.

If the changes are adopted, investors voting via a proxy card will have the same flexibility voting their shares as the shareholders at the annual meeting. It will become easier for shareholders to split their tickets among board candidates backed by management and shareholders.

Disputes about proxy matters and shareholder votes come before the SEC with some regularity, and they’re often sparked by sharp differences of opinion between business groups and shareholders, particularly public employee pension funds.

At this stage, the chief business lobbying organization, the U.S. Chamber of Commerce, appears opposed to the changes recommended in the petition. In the Chamber’s view, shareholders could press for changes to the proxy ballot’s format at the state level or by changing corporate bylaws one company at a time.

“To some degree it is proxy access all over again. The SEC and the staff have to take a hard look at the fact that investors have not moved down this road,” said Tom Quaadman, vice president for the Chamber’s Center for Capital Markets Competitiveness. Quaadman was referring to the SEC’s 2010 rule, Release No. 33-9136, Facilitating Shareholder Director Nominations, that was overturned by an appellate court decision in 2012.

For many companies, the bigger issue in terms of proxy voting is the dominance of the market for voting advice by two firms — Institutional Shareholder Services (ISS) and Glass, Lewis & Co. A December 2013 roundtable at the SEC examined the role the two proxy advisors have in shareholder votes.

An October 2013 petition from stock-exchange owner NASDAQ OMX Group Inc. asked the SEC to update its rules for the advisers and force them to provide investors with more information about their decision-making process.

In June 2014, the SEC published Staff Legal Bulletin (SLB) No. 20 Proxy Voting: Proxy Voting Responsibilities of Investment Advisers and Availability of Exemptions from the Proxy Rules for Proxy Advisory Firms, to review some rules covering investment advisers and their responsibilities for proxy voting. The guidance also explains two exemptions from its rules that are often employed by proxy advisers.

SLB No. 20 clarified requirements from Release No. IA-2106, Proxy Voting by Investment Advisers, a 2003 rule that said investment advisers can resolve their conflicts of interest in shareholder votes by relying on the recommendations of an independent third party.

A spokesman for ISS was unable to provide a comment.

Robert McCormick, Glass, Lewis’s chief policy officer, said the roundtable “can be a very healthy way to learn about how investors make voting decisions.” He also called the IAC’s request for a universal proxy card an idea worth consideration.

“To the extent that it provides shareholders more options to cast their vote, it’s a good thing,” he said.