At first blush, the Commission appears to be taking a corporate governance neutral step intended to give proxy card voters the same flexibility as shareholders who attend the meeting in person and vote by ballot. However, the proposal will further advance the means available to dissident shareholders in waging disputes with management over corporate governance and other company affairs. One might expect that this proposal will motivate dissident investors to alter their tactics in campaigns to unseat directors, force a sale of the company, or other self-serving goals. Many shareholders may not recognize the difference between management and dissident nominees on a universal proxy card. A contested election is already confusing enough without comingling the nominees. While the Commission's intentions may be laudable, we are unaware of empirical evidence that shows that more than an anecdotal number of shareholders desire to split their votes in contested elections. It is our experience that in the overwhelming number of instances, a shareholder is either for management's slate of nominees or not.
From the perspective of a dissident, the requirement that a majority of the votes entitled to vote on the election of directors must be solicited and provided with the dissident’s own proxy solicitation materials, with the additional potential cost component this entails, may be a disincentive to some dissidents to proceed.
In light of the potential complexities raised by the Commission's proposal, and the competing perceptions of fostering vs. impeding shareholder rights, companies may want to prepare and submit a comment letter. Moreover, boards and managements should consider consulting with counsel long before any possibility of a contested election appears on the horizon.
For more information about this piece or our practice please contact our author, Douglas P.
Additionally, please visit lockelord.com for previously published Quick Studies from our Bank
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