Risk & Compliance

SEC Cracks Down on Vague Proxy Cards

Companies must “clearly and impartially” describe management and shareholder proposals, the SEC says in a rule update.
Katie Kuehner-HebertMarch 25, 2016

The U.S. Securities and Exchange Commission has directed companies to avoid using vague language to describe shareholder proposals that management opposes.

The agency on Tuesday clarified a rule that requires proxy cards to “clearly and impartially” describe the specific action to be voted upon, saying the principle applies to both management and shareholder proposals.

“For example, it would not be appropriate to describe a management proposal to amend a company’s articles of incorporation to increase the number of authorized shares of common stock as ‘a proposal to amend our articles of incorporation,’” the SEC said in a rule update.

“Similarly, it would not be appropriate to describe a shareholder proposal to amend a company’s bylaws to allow shareholders holding 10% of the company’s common stock to call a special meeting as ‘a shareholder proposal on special meetings,’” the update said.

The clarification was requested by the Council of Institutional Investors, according to The Wall Street Journal. In a June 2015 letter to the SEC, Glenn Davis, the council’s director of research, said vague wording in proxy cards “not only presents challenges to investors’ understanding of the voting items, but also raises questions of impartiality.”

The council named two banking companies New York Community Bancorp and FirstMerit that it said had used vague language to describe proxy proposals by shareholders.

In one instance, New York Community Bancorp described a shareholder proposal for proxy access the ability to print the names of director candidates directly onto company ballots as “A shareholder proposal, as described in the proxy statement, if properly presented at the annual meeting.”

In contrast, the company used more detailed language in a routine management proposal to ratify its auditors. The proposal was described as: “The ratification of the appointment of KPMG LLP as the independent registered public accounting firm of New York Community Bancorp, Inc. for the fiscal year ending December 31, 2015.”

A spokesman for New York Community Bancorp declined to comment for the WSJ article and a FirstMerit spokesman couldn’t be reached for comment.