Risk & Compliance

House Blocks SEC’s Universal Proxy Ballot Plan

The SEC has been working on a rule that could give activist investors an edge in contested board elections.
Christopher HosfordJuly 8, 2016

The House of Representatives has moved to stop the U.S. Securities and Exchange Commission from proposing a new rule that could make it easier for shareholders to vote for board members nominated by activist investors.

The agency was expected in the coming weeks to propose allowing proxy voters to use a single voting form in contested elections. Currently, voters in contested elections receive two sets of ballots, each featuring a rival slate of board candidates.

But the House voted 243-180 on Thursday to add language to a spending bill for the fiscal year beginning Oct. 1 that would bar the SEC from writing a universal ballot rule.

“Put simply, while they sound quite benign, universal proxy ballots are a means for special interests to easily nominate their preferred candidates to a company’s board, which would fundamentally change the way in which public company directors are elected in the United States,” Rep. Scott Garrett (R-N.J.), who proposed the language, said in a statement.

The SEC has said the universal ballot would enhance corporate democracy by allowing shareholders to vote on board candidates not backed by corporate management.

“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,” SEC Mary Jo White said last year.

Universal ballots are currently allowed under SEC rules if both parties consent but shareholders would have to attend a company’s annual meeting in person to vote for candidates on both slates.

“The fight over universal ballots was unexpected, in part because the SEC has yet to actually propose a rule,” The Wall Street Journal said.

But Garrett, a longtime opponent of a universal ballot, expressed his objections to White last year after she announced she had directed staff to make “appropriate rule-making recommendations.”

“Your announcement puts into motion a singular rulemaking that is likely to favor special interest activists over the vast majority of public company shareholders,” Garrett wrote the SEC chief.