Wednesday, August 25, 2010

SEC's Approves 3% Solution For Proxy Access

Earlier today, consistent with the provisions of the Dodd-Frank Act, the SEC approved what I'll refer to as the "three percent" solution for the contentious issue of proxy access. As summarized in detail by James Hyatt of Business Ethics Magazine:

Under the new rule approved by the Commission, shareholders seeking access to corporate proxy materials would:

--have to own at least 3% of the total voting power entitled to vote at the meeting.
--be able to aggregate holdings to meet the 3% requirement.
--be required to have held their shares for at least three years.
--not be able to use the new rule "if they are holding the securities for the purpose of changing control of the company."
--be able to include one nominee or a number up to 25% of the board, whichever is greater. (If a board had three members, shareholders could nominate one; if a board had eight members, up to two nominees could be proposed)....

The SEC said "'smaller reporting companies" would be subject to the rule only after a three-year phase-in period. Commission staff said the three-year delay would enable smaller companies to see how the rule works at larger companies and how it would affect them. It would also let the commission determine whether changes in the rule might be required, the staffers said....

The new rule -- called Rule 14a-11 -- requires shareholders to submit nominees no later than 120 days before the anniversary date of the mailing of the prior year proxy statement. Thus, if the rule becomes effective on Nov. 1, 2010, it would be available at companies that mailed their last annual meeting proxy statement no earlier than March 1, 2010....

As had been widely expected, the SEC acted on a 3-2 vote to adopt the new procedures, with Republican commissioners Troy Paredes and Kathleen Casey voting no.
Here is a link to SEC's press release issued after the open meeting, which includes a link to the 451-page final rule. As noted in the press release, the rule becomes effective 60 days after it is published in the Federal Register.

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