(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)
Last week, the SEC disclosed that it would not appeal the opinion of the D.C. Circuit Court that struck down Rule 14a-11, the proxy access rule that would have allowed shareholders to nominate members of the board of directors and required the company to include these nominees in its proxy statement. Therefore, Rule 14a-11 will not go into effect unless the SEC readopts the rule using procedures that will satisfy the courts.
At the same time, the SEC announced that it will allow a companion change to Rule 14a-8 (PDF) to go into effect. The amended Rule 14a-8 allows shareholders to submit proxy access proposals at individual companies and would prevent the companies from excluding those proposals. This process is known as "private ordering." The SEC issued a stay of effectiveness of Rule 14a-8 at the same time it stayed the effectiveness of Rule 14a-11. In its release last week, the SEC confirmed that the stay will expire without further SEC action on the date when the court’s decision will be finalized, expected to be September 13, 2011. The ON Securities Cheat Sheet, always available on this site, has been updated to provide more detail on amended Rule 14a-8.
In a recent post on the Conference Board Blog, “2012 Proxy Access Shareholder Proposal Wave Can Commence Next Week,” Gary Larkin reports that many commentators are recommending that proxy access proposals should be on the radar screens of boards of directors for the 2012 proxy season. This is true – of course, boards should be familiar with the operation of the amended rule.
But should companies expect a flood of shareholder proposals demanding or requesting proxy access? Probably not, at least not right away. Ted Allen in the ISS Governance Blog provides a very useful perspective on the advent of private ordering. In “Will Proxy Access Appear on Corporate Ballots in 2012?”, Allen reports:
At this point, it appears unlikely that investors will submit dozens of access proposals for 2012 meetings, as they have done in past seasons to seek board declassification, majority voting bylaws, or "say on pay" votes. There is concern among some activists that corporate advocates will argue that federal access standards are not needed if investors file a large number of access resolutions next year.
Amy Borrus, CII's [the Council of Institutional Investors’] deputy director, said she expects to see "probably not more than a handful" of access proposals in 2012. "I expect that shareowners will file proxy access proposals selectively at companies where boards have a history of not being responsive to shareowners or have been asleep at the switch," she said.
Allen also points out a variety of factors that will discourage proxy access proposals, especially binding votes on bylaws amendments, or make it more difficult for shareholders to get support for the proposals. See this previous post for further discussion of binding vs. non-binding votes.
In other words, once again to paraphrase Bob Dylan (a/k/a Bobby Zimmerman from Minnesota), it may be a while before shareholders are “knock-knock-knockin’ on the boardroom’s door.” But this delay doesn’t change the fact that, in terms of shareholder relations, “the times they are a-changin’.”