September 7, 2022

Universal Proxy: A Roundup of Recent Commentary

Over the past several weeks, there’s been a lot of interesting commentary on some of the implications of the SEC’s universal proxy rules.  Here are some of the highlights:

– Should you amend your bylaws to address universal proxy? This Hunton Andrews Kurth memo says the answer is “yes” and provides details on what companies should consider addressing. Here’s an excerpt from the intro:

Companies should consider whether to amend their bylaws in connection with the SEC’s new universal proxy rule, which will be effective for shareholder meetings to be held after August 31, 2022. Although new Rule 14a-19 contains certain requirements for a dissident shareholder to conduct a proxy contest, the rule also reinforces the importance of complying with the corporation’s organizational documents.

In addition, most commentators expect that the universal proxy rule will lead to more proxy contests both from traditional activist hedge funds and potentially a new breed of activists who have not previously pursued board representation. It will be important, therefore, for public companies to maintain state-of-the-art advance notice bylaws to ensure an orderly nomination and election process, and to make sure that a dissident’s interests are fully disclosed to the corporation and its other stockholders

– Why did the Staff issue a CDI (#139.01) clarifying that a dissident couldn’t include the names of more nominees than it intended to run in its Rule 14a-19(b) notice? This Gibson Dunn blog provides the answer:

We understand the Staff’s guidance on this issue is primarily directed at the frowned-upon practice engaged in by certain dissident shareholders who list more nominees than there are open seats for election.  In such cases the dissident shareholders place brackets around the names of all their nominees at the early stages, only to finalize their list of nominees (with brackets removed) when filing a definitive proxy statement.  This interpretive guidance is intended to restrict such gamesmanship engaged in by dissidents.

– Sidley recently launched its own “Universal Proxy Card Resource Center” that provides links to the SEC’s adopting release, guidance and related materials, as well as selected comment letters and other resource materials.  Sidley appears to be the first law firm that’s put together something like this, but I doubt it will be the last.  Don’t forget Michael Levin’s if you’re looking for universal proxy resources.

– I recently blogged about what ISS had to say on universal proxy.  Now, Glass Lewis has weighed in via its blog. Here’s an excerpt:

For our part, we do not expect our overall approach in evaluating proxy contests to change under the universal proxy card system. We would also note that these are not entirely uncharted waters – universal proxy cards are utilized in certain markets outside the United States, including limited use in North America in the past.

All that being said, in order to support any dissident nominee in a proxy contest, we still require the activist to make a compelling case for change and to nominate qualified, unconflicted director candidates who seem better suited to address deficiencies or to facilitate a superior outcome for shareholders. In short, the hurdles we believe an activist must clear in order to win board representation will not be lower under a universal proxy card system.

So what could change? The new rules will potentially make all incumbent directors on a board more vulnerable for replacement, whether they are specifically identified as a targeted director by the activist or not. In a non-classified board situation, this could mean more incumbent directors will need to be intimately involved in the situation, engaging with shareholders and other interested parties.

In addition to the law firm memos & other materials on the new rules available in our “Proxy Fights” Practice Area, we’ve also hosted a webcast on the new regime and, more recently, podcasts with Goodwin’s Sean Donahue and The Activist Investor’s Michael Levin. You can count on us to continue to keep close tabs on how the new rules are influencing activist campaigns and proxy contests and provide you with timely and practical resources to help you deal with what we expect will be a rapidly evolving environment. Subscribe today to access these materials & our other resources! You can subscribe online, by emailing, or by calling (800) 737-1271.

John Jenkins