On Nov. 17, 2021, the U.S. Securities and Exchange Commission (SEC) announced the
adoption of final rules, including a new Rule 14a-19 and amendments to existing rules under the
Securities Exchange Act of 1934. The new rules require the use of universal
proxy cards that provide the names of all director nominees in non-exempt
contested director elections, including the names of both registrant and
dissident nominees, as well as any proxy access nominees.
The new rule and amendments will be effective 60 days after publication in
the Federal Register, and will apply to any shareholder meeting held after
Aug. 31, 2022.
Currently, a party in a contested election is not permitted to include the
names of the other party’s nominees on a proxy card without the other
party’s nominees’ consent, which is rarely, if ever, provided.
Consequently, in a contested election, a shareholder is not able to use a
proxy card to vote for a combination of director candidates nominated by
the issuer and a dissident shareholder. If the shareholder wishes to vote
for a combination of all the director nominees, the shareholder can only do
so by voting in person at the shareholder meeting.
Once the new rules go into effect, the use of a universal proxy card will
be required in all non-exempt elections in which a dissident shareholder
solicits votes for its own director nominees. Contested elections of
registered investment companies and business development companies are
exempt from the requirement to use a universal proxy card.
Further, under the new rules, a dissident shareholder who solicits proxies
in favor of a proposal or engages in a “vote no” campaign, but who does not
present its own slate of competing nominees, will be permitted to include
all, or only some, of the company’s nominees on its proxy card. The SEC
recommends, however, that the dissident disclose the fact that it is not
listing all such nominees, in order to avoid potential liability under Rule
14a-9 for omission of material facts.
Notice and Timing Requirements
The final rules include certain notice and filing requirements on both
dissident shareholders and companies.
Dissidents must provide issuers with notice of their intent to solicit
proxies and provide the names of their nominees no later than 60 calendar
days before the anniversary of the previous year’s annual meeting. However,
if an issuer includes an earlier notice deadline in its governing
documents, the dissident shareholder must comply with that earlier
deadline. The new rules also set a deadline by which dissident shareholders
must file a proxy statement – the later of 25 calendar days before the
annual meeting and five calendar days after the company has filed its
definitive proxy statement.
Issuers must notify dissidents of the names of the issuer’s nominees no
later than 50 calendar days before the anniversary of the previous year’s
annual meeting unless the issuer already provided the names in a
preliminary or definitive proxy statement. The company must also disclose
in its proxy statement how it intends to treat proxy authority granted in
favor of a dissident’s nominees in the event the dissident abandons its
solicitation or fails to comply with Regulation 14A, including the deadline
for filing a definitive proxy statement.
The SEC also notes in the
final rule release that if, after a company disseminates its universal proxy card, the
dissident fails to meet the filing deadline, the company can elect to
disseminate a new, non-universal proxy card including only the names of the
Minimum Solicitation Requirement for Dissidents
The amendments also require that a dissident include in its proxy statement
or on its proxy card a statement of its intention to solicit the holders of
shares representing at least 67 percent of the voting power of the shares
entitled to vote at the meeting. Prior to these rule changes, dissidents were not
required to solicit any minimum number of shareholders in an election
The purpose of the new minimum solicitation requirement is to prevent
dissidents from capitalizing on the registrant’s solicitation efforts
without undertaking their own meaningful solicitation efforts, which the
SEC acknowledged could potentially expose registrants to frivolous proxy
contests. The SEC did not, however, adopt a special mechanism for ensuring
compliance with the minimum solicitation requirement.
Access to Information About All Nominees
Although a party is not required to include information about the other
party’s nominees in its proxy statement, the amendments require that each
party in a contested election direct shareholders to the other party’s
proxy statement for information about that other party’s nominees and
inform shareholders that they can access the other party’s proxy statement
without charge on the SEC’s website.
Formatting and Presentation of the Universal Proxy Card
While issuers and dissidents will still be able to exercise a certain
amount of flexibility as to the design of proxy cards, the amended rules
include certain requirements related to presentation and formatting of the
universal proxy card for consistency and ease of use. The new rules will
require that universal proxy cards:
- Set forth the names of all duly nominated director candidates.
- Clearly distinguish among company nominees, dissident nominees and proxy
access nominees, if any.
- Within each group of nominees, list the nominees in alphabetical order by
- Use the same font type, style and size for all nominees.
- Prominently disclose the maximum number of nominees for which authority
to vote can be granted.
- Provide a means for shareholders to grant authority to vote for the
nominees set forth.
- Prominently disclose the treatment and effect of a proxy card that is
executed to (i) grant authority to more nominees than there are open seats,
(ii) grant authority to fewer nominees than there are open seats, and (iii)
grant authority to no nominees.
New Required Voting Options Applicable to All Director Elections
(Contested and Uncontested)
In all director elections, issuers will be required to make certain changes
to the voting options on their form of proxy for director nominees. The
form of proxy will need to include an “against” voting option instead of a
“withhold” option for each director candidate when there is a legal effect
to such a vote under state law. Also, in elections governed by a majority
(as opposed to plurality) vote standard, all proxy cards will need to
provide shareholders with an option to “abstain” from voting for each
director nominee (instead of “withhold”). Issuers will also be required to
describe in their proxy statements the treatment and effect of a
shareholder withholding authority to vote for a nominee, to the extent
Issuers should start preparing for these new rules now by reviewing their
organizational documents to ensure that they contain sufficient advance
notice provisions. While the new rules add certain advance notice
requirements for shareholders nominating their own director candidates,
such rules are only default requirements, and issuers can include more
stringent notice requirements in their organizational documents (within the
limits of the state laws where the issuer is incorporated).
Though the new disclosure requirements are not applicable for meetings held
before August 31, 2022, issuers should begin considering the impact of the
rule changes on their current disclosures. It is also recommended that
issuers carefully review the voting standards and voting options
disclosures in their proxy statements to ensure that such disclosures are
sufficiently clear to the average shareholder, even before the rules go
Lastly, issuers should continue to engage with their shareholders
throughout the year. While there is a potential for increased dissident
nominations as a result of the mandated universal proxy card and ease for
dissident shareholders to reach wider audiences, some shareholders may be
amenable to discussions with an issuer’s board of directors or officers
about their concerns, with the possible result of avoiding a contested
election. It is also possible that increased costs associated with the new
minimum solicitation requirement and other procedural requirements could
result in fewer dissident nominations and influence shareholders to pursue
other forms of activism.
For additional guidance on the information in this alert, please contact
any of the authors, any member of McGuireWoods’
securities compliance or
securities enforcement teams, or your primary McGuireWoods contact.
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