The Securities and Exchange Commission (SEC) yesterday adopted changes to the federal proxy and other rules to facilitate the rights of shareholders to nominate directors to a company's board.
The new rules require companies to include the nominees of significant, long-term shareholders in their proxy materials, alongside the nominees of management. This "proxy access" is designed to facilitate the ability of shareholders to exercise their traditional rights under state law to nominate and elect members to company boards of directors.
Under the rules, shareholders will be eligible to have their nominees included in the proxy materials if they own at least 3 percent of the company's shares continuously for at least the prior three years. A shareholder will be able to include no more than one nominee, or a number of nominees that represents up to 25 percent of the company’s board of directors, whichever is greater.
"As a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own," said SEC Chairman Mary L. Schapiro. "Nominating a director candidate is not the same as electing a candidate to the board. I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfill the responsibilities of serving as a director. The critical point is that shareholders have the ability to make this choice."
The SEC’s approval of the new measures follows enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which provided the SEC with explicit authority to make rules addressing shareholder access to company proxy materials.
Under the new rules:
*Shareholders who otherwise are provided the opportunity to nominate directors at a shareholder meeting under applicable state or foreign law would be able to have their nominees included in the company proxy materials sent to all shareholders.
*Shareholders also have the ability to use the shareholder proposal process to establish procedures for the inclusion of shareholder director nominations in company proxy materials.
Application of the new access rules to the smallest public companies — those that are defined as "smaller reporting companies" under SEC rules — will be deferred or three years. Generally, the new rules will become effective 60 days after their publication in the Federal Register.
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