Yesterday the Securities and Exchange Commission adopted Exchange Act Rule 14a-11, a new proxy access rule requiring public companies to include the director nominees of certain shareholders in their proxy materials.
The new rule is effective for all companies except smaller reporting companies 60 days after its publication in the federal register. The rule is effective for smaller reporting companies after a three year deferral period. The rule does not effect foreign private issuers, which are exempt from the Exchange Act proxy rules altogether.
Under the new rule a company is required to include a shareholder’s director nominee in its proxy materials if the nominating shareholder:
- owns a minimum of 3% of the total voting power of the company’s securities (groups of shareholders can aggregate their shares to meet this minimum threshold);
- has held the minimum number of shares for at least three years;
- certifies that they will continue to hold the minimum number of shares through the date of the shareholder meeting; and
- certifies that they are not holding the shares for purposes of effecting a change in control or to gain a number of board seats in excess of the maximum permitted under the rule.
A nominating shareholder must provide notice to the Commission and the company of their director nominees between 150 and 120 days before the date on which the company’s proxy materials were mailed the year before. To be eligible, a shareholder nominee must meet the requirements of applicable federal, state and foreign laws and the national securities exchange or association rules.
The new rule also limits the number of shareholder nominees to the greater of one nominee or up to 25% of the total number of board seats. If more shareholder nominees are put forth than seats are available, only the nominees of the shareholder or shareholder group with the largest percentage of qualifying voting power must be included in the company’s proxy materials.
The Commission also amended Exchange Act Rule 14a-8(i)(8) to allow shareholders to propose amendments to a company’s governing documents that would establish procedures for the inclusion of shareholder director nominees in the company’s proxy materials.
The Commission’s full adopting release (all 451 pages) is available here.