SEC Adopts Proxy Access

This week, the SEC adoped final rules on proxy access which will require companies to provide certain shareholders or shareholder groups the opportunity to nominate candidates for boards of directors and to include information in the company's proxy materials about, and the ability to vote for, these shareholder nominees.

The final rules contain various eligibility requirements for nominating shareholders or groups, including that they have held 3% of the company's securities for at least three years but that this is without the purpose or effect of changing control of the company. There are also eligibility requirements for shareholder nominees, such as meeting the objective independence standards of any applicable national securities exchange. There is also a cap on the number of shareholder nominees that must be included (the greater of 1 or 25% of the entire board), with preference given to the nominating shareholder holding the greatest number of company securities.

Nominations will be submitted on a new Schedule 14N which requires certain disclosures and certifications and which must be filed with the SEC and submitted the company. The final rules also establish a process by which a company may seek to exclude a nominee or statement in support of a nominee if not all eligibility, procedural and substantive requirements are met.

The final rules also limit companies’ ability to exclude shareholder proposals relating to (1) the nomination or election of directors or (2) any procedures or disclosures related to such nomination or election, including those required by the company’s governing documents.

For more information on the final rules and please see our recently published Advisory on this topic.