This article is one in a three-part series. Click here to read Olshan’s review of activism in 2016 and Olshan’s look ahead at activism in 2017.
The most significant regulatory development of 2016 relating to shareholder activism in the US is the SEC’s proposal to require ‘universal’ proxy ballots in contested elections.
Under the proposed rules, both the company and the dissident would be required to disseminate its own universal proxy card that includes the names of both the management and dissident slates.
Proponents of the proposed rules believe that under the current federal proxy regime, where separate proxy cards are disseminated by the dissident and management listing their respective competing slates, it is too difficult for shareholders to mix and match their votes among all candidates. Currently, a shareholder who desires to split votes generally must attend the shareholder meeting and vote by ballot.
The proposed rules would require the dissident and the company to provide each other with notice of the names of their respective director nominees, establish a deadline for filing the dissident proxy statement and provide for a minimum solicitation requirement for the dissident.
In its proposing release, the SEC requests comments on various potential mechanical and policy issues it took into consideration when formulating the proposal, including whether investor confusion could be caused by including one party’s nominees on the other party’s proxy card, whether the use of universal proxies would increase the frequency of election contests and whether universal proxies would provide unfair strategic advantages to the dissident or management. The deadline for submitting comments to the SEC was January 9, 2017 so we do not expect the final rules, if approved, would be applicable to the 2017 proxy season.
Despite the tremendous amount of time and effort devoted by the SEC in rolling out the 243-page proposing release, some are skeptical that the rules will be enacted under the new Trump administration.
The proposed rules were initially approved by a vote of 2-1 by the commissioners of the SEC, with Chair Mary Jo White and Kara Stein voting for the proposal and sole Republican commissioner Michael Piwowar voting against the proposal. In his dissenting remarks, Piwowar expressed his view that the proposal ‘has been pushed for years by special interest groups and it would increase the likelihood of proxy fights at public companies, thereby distracting management and employees from carrying out their core mission.’
Mary Jo White has indicated that she intends to step down as chair at the conclusion of president Obama’s administration and it has been reported that Jay Clayton, a Sullivan & Cromwell attorney, has been selected by president-elect Trump to take her place. Chair White’s departure, coupled with Trump’s ability to fill her vacancy and an additional two existing vacancies with Republican commissioners who share Piwowar’s views on the matter, could bring the universal proxy proposal to a screeching halt.
Steve Wolosky, Andrew Freedman and Ron Berenblat are members of Olshan Frome Wolosky’s Activist & Equity Investment Group
