DealLawyers.com Blog

After we shared Disney’s How to Vote video in early February, Tulane Law Prof Ann Lipton noted an interesting aspect of the video — the focus of Disney’s message isn’t just to vote for its nominees, but specifically that shareholders use Disney’s white proxy card. And this isn’t limited to this video. Disney’s proxy statement, Trian’s proxy statement and plenty of other parties in post-UPC proxy contests have done this.

But, Ann asks, why STILL do this after UPC? I think reasonable minds can differ on how valuable it is to stress that a particular proxy card be returned, but there seem to be some reasons to continue encouraging that. Here are a few we’ve heard or come up with, in no particular order:

– The SEC’s permitted treatment of signed but unmarked proxy cards. After Trian’s aborted contest last year, we shared their treatment of overvoted, partially marked and unmarked but signed proxies. Then the SEC came out with these three CDIs. While that changed the approach to overvoted proxy cards this year (discretionary authority cannot be used for overvoted or undervoted proxy cards), a soliciting party can use discretionary authority to vote shares represented by a signed but unmarked proxy card as long as the form of proxy states in bold-faced type how the proxy holder will vote where no choice is specified.

– Vote visibility. Each party only has visibility into registered holder votes when registered holders return their proxy card. Although, later dated proxy cards revoke previously submitted proxy cards, so some of those votes might be revoked by shareholders later sending in the other party’s proxy card, and parties don’t have visibility into those revocations.

– There’s something valuable about the actual card, even if it’s psychological.

• Each party lists their nominees first on their own card and highlights their recommendations. The power of suggestion may be at play.
• In the contest at Exxon, Engine No. 1 snagged the white proxy card — the color that’s traditionally been used by management — before the company could and that may have helped its chances.
• As John shared, some companies are concerned enough about dissidents grabbing the white card to increase the likelihood that investors return it that they have amended their bylaws to say the white proxy card is reserved exclusively for board use.
• “Vote the white card; discard the blue card” might be an easier message for retail holders who aren’t as familiar with the nominees and players.

– Change is scary. We cared about this before UPC, and it’s hard to let go.

Michael Levin at The Activist Investor pointed out that the biggest benefit may be the opportunity for electioneering but also noted that many shareholders vote electronically, so the color of the card and how it’s returned is becoming less relevant.

Perhaps this goes beyond monitoring which shareholders vote. Maybe each wants the opportunity to persuade shareholders to change votes. An activist can do that only if they have the proxy card. […] Before UPC, a solicitor would monitor which shareholders already voted, and which ones to pester. Solicitation became a process of follow-up on the delinquent ones.

Now, an activist will collect many proxy cards with votes for both activist and company nominees. The solicitor will know, real-time, how shareholders vote, in addition to whether they vote. Importantly, they’ll see which ones are skeptical or wavering and split votes between activist and company candidates. And, they’ll see them at a time they can do something about it.

If you have thoughts on other reasons, please share. We’d happily supplement this post with more.

– Meredith Ervine