The U.S. Securities and Exchange Commission is working on new rules that could give activist investors an edge in contested board elections.
Currently, shareholders who vote by proxy receive two sets of ballots, each featuring a rival slate of board candidates. Only those who physically attend annual meetings are allowed to split their ticket and vote for a mix of candidates nominated by company management and by large shareholders.
At a conference Thursday, SEC Chair Mary Jo White said she had asked staff to bring “appropriate rule-making recommendations” before the commission that would allow proxy voters to use a single voting form in contested elections.
“If a company’s or proponent’s nominees gave their consent to appear on the other side’s proxy card, then all shareholders would have the full range of voting options available to them,” White told the Society of Corporate Secretaries and Governance Professionals in Chicago.
“I realize that putting this into practice may have its challenges and that companies could choose different ways of making it work,” she added. “But it could be beneficial for your shareholders.”
The commission held a roundtable in February on ways to improve the proxy voting process. “No one specifically called into question the fundamental concept that our proxy system should allow shareholders to do through the use of a proxy ballot what they can do in person at a shareholders’ meeting,” White noted.
According to The Wall Street Journal, the proposal for a universal proxy could bolster activist campaigns, as the universal ballot is widely seen as more helpful to outsiders trying to get a seat on a board, especially in seeking the votes of smaller investors.
“Slate voting allowed individual director nominees to sort of hide in the collective,” said Roy Katzovicz, chairman of investment firm Saddle Point Group and a member of the SEC’s investor advisory committee. “By moving toward a universal ballot, each nominee stands on his or her own merit.”
But Richard Grossman, a lawyer at Skadden, Arps, Slate, Meagher & Flom, was skeptical. “At the end of the day, I think it would only make a difference on the margins,” he said.