Yesterday on TheCorporateCounsel.net, Liz blogged about the SEC’s decision to mandate the use of universal proxies in contested elections. The new rules don’t apply until next August, but law firm memos analyzing their potential implications are already starting to roll in. This excerpt from Gibson Dunn’s memo provides some key takeaways for public companies:
More Contested Director Elections: Shareholders will be more inclined to support one or two dissident nominees when they can do it on a universal proxy card, as opposed to the current system that generally requires shareholders voting by proxy to sign the activist’s card if they want to support any member of the activist’s slate. Therefore, the use of universal proxies should make it easier for activists to win at least one board seat, which will likely embolden traditional and new ESG-focused activists to run director campaigns.
Potential for Cheaper Activist Election Campaigns: One of the traditional economic barriers for conducting a director proxy contest was the activist’s strategic need to make multiple mailings of its proxy card. This results from the fact that in a proxy contest only the last executed proxy card counts, so it has been imperative in a proxy contest for each side to make sure that it matches every proxy card mailing by the other side with one of its own to mitigate against the risk that a shareholder switches proxy cards (and thus entire slates). When a universal ballot is used by both the company and dissident, the consequences of a shareholder switching cards is less important as every proxy card, regardless of which side mails it, includes the nominees from both the company and dissident. Activists can therefore avoid the expense of making multiple mailings of a proxy card.
The news isn’t necessarily all bad for public companies. The memo notes that it isn’t hard to envision certain scenarios, such as efforts to grab control of the board, where an activist might prefer to compel shareholders to choose between the blue proxy card and the white proxy card. We’re posting memos in our “Proxy Fights” Practice Area.
– John Jenkins