DealLawyers.com Blog

This HLS blog post from the Shareholder Activism & Takeover Defense Practice at Latham briefly references another funky voting issue coming out of UPC. It says:

Each contest brings outcome-determinative procedural issues to light, such as MindMed retaining broker discretionary authority for shareholders who did not receive activist proxy materials, emphasizing the importance of engaging seasoned advocates deeply familiar with the new UPC rules and associated technicalities.

This Latham announcement about its involvement in the contest says: “In a significant change from all prior universal proxy contests, broker discretionary authority was retained for the routine auditor proposal with respect to all MindMed shareholders who did not receive proxy materials from the contesting shareholder.”

As a reminder, NYSE Rule 452 governs when brokers, banks and other securities intermediaries that are subject to NYSE rules (note that it doesn’t matter where the company’s securities are listed) may use discretion to vote uninstructed shares. Auditor ratification proposals are typically considered “routine” matters that brokers are generally permitted to vote using their discretionary authority — however, to do so, the member organization giving or authorizing the giving of the proxy must have no knowledge of any contest as to the action to be taken at the meeting. It appears that companies have successfully argued that the auditor ratification proposal should be considered a discretionary/routine matter in a contested election with UPC, solely with respect to shareholders who did not receive proxy materials from the activist.

Here’s the related disclosure in the MindMed proxy:

Typically, the appointment of the independent registered public accounting firm is a routine matter as to which, under applicable NYSE rules (which NYSE-registered brokers must comply with even with respect to Nasdaq-listed companies), a broker will have discretionary authority to vote if instructions are not received from the client at least 10 days prior to the Annual Meeting (so-called “broker non-votes”). However, because the FCM Group has initiated a proxy contest, to the extent that the FCM Group provides a proxy card or voting instruction form to shareholders who hold their shares in “street” name, brokers will not have discretionary voting authority to vote on any of the proposals at the Annual Meeting.

As a result, assuming the FCM Group has provided you with its proxy materials, all proposals disclosed in this proxy statement, including Proposal No. 2 for the appointment of the Company’s independent registered public accounting firm, will be considered non-routine under the rules of the NYSE and your broker will not vote your shares on any proposal without your instructions. Accordingly, it is very important that you instruct your broker how you wish your shares to be voted on these matters.

Disney’s proxy has similar language:

Under New York Stock Exchange Rules, the proposal to approve the appointment of independent auditors is considered a “discretionary” item, to the extent your brokerage firm has not provided you with the Trian Group’s proxy materials or with the Blackwells Group’s proxy materials. This means that such brokerage firms may vote in their discretion on this matter on behalf of clients who have not been provided with the Trian Group’s proxy materials or with the Blackwells Group’s proxy materials and have not furnished voting instructions by the date of the Annual Meeting.

In contrast, the election of Directors, the advisory vote on executive compensation, the approval of the Amended and Restated 2011 Stock Incentive Plan, the Trian Group Proposal, the Blackwells Group Proposal and the other shareholder proposals are “non-discretionary” items. This means brokerage firms that have not received voting instructions from their clients on these proposals may not vote on them. These so-called “broker non-votes” will be included in the calculation of the number of votes considered to be present at the meeting for purposes of determining a quorum, but will not be considered in determining the number of votes necessary for approval and will have no effect on the outcome of the vote for Directors, the advisory vote on executive compensation, the approval of the Amended and Restated 2011 Stock Incentive Plan, the Blackwells Group Proposal and the other shareholder proposals (but, with respect to the Trian Group Proposal, “broker non-votes” will be considered in determining the number of votes necessary for approval and will therefore have the effect of a negative vote on such proposal).

– Meredith Ervine