December 9, 2016

Shareholder Activism: What if Universal Proxy Is Adopted? What If It Isn’t?

This memo from Sidley’s Beth Peev shares some initial thoughts on the practical implications of universal proxies on proxy contests & shareholder activism.  If adopted, universal proxies may encourage dissidents to take a proxy contest to a vote when they are seeking only 1 or 2 seats, but may prompt parties to settle when larger numbers of board positions are involved:

Where dissidents are seeking more than one or two seats, greater uncertainty about the election outcome may lead participants to negotiate a settlement rather than proceed to a vote (or, in the case of dissidents, incur expenses to comply with advance notice provisions, prepare and file proxy materials, etc.). If stockholders are able to pick and choose from among the registrant’s and the dissident’s nominees, voting results are likely to be less predictable. The number of possible results under the proposed rules is greater than under the current system because any combination of nominees could receive the most votes.

Other potential implications of universal proxies include increased emphasis on candidate qualifications, more careful consideration by dissidents of the number of candidates to put forward, and an increase in the influence of proxy advisor recommendations in contests for board control.

Of course, this all assumes that the universal proxy proposal is adopted. This memo from Fried Frank says that isn’t likely to happen, but goes on to suggest that the consequences of that may include more pressure from shareholders to expand proxy access & to adopt universal proxy bylaws.

John Jenkins