On September 1, 2022, new universal proxy rules adopted by the Securities and Exchange Commission (“the SEC”) formally went into effect. These rules mandatorily apply to public company director elections held after August 31, 2022. This post summarizes the key provisions of Rule 14a-19 of the Securities Exchange Act of 1934, as amended (“Rule 14a-19”), and provides recommendations for potential corporate bylaw amendments.
I. Summary of Key Provisions of Rule 14a-19
- Under Rules 14a-19(a)-(c), the proposing stockholder must:
(1) provide the corporation with notice of the names of such stockholder’s nominees 60 days prior to the anniversary of the previous year’s annual shareholder meeting;
- with the exception that if the corporation did not hold an annual meeting during the previous year or if the date of the meeting has changed by more than 30 days from the previous year, then notice must be provided by the later of: (a) 60 days prior to the date of the annual meeting or (b) 10 days following the day on which public announcement of the date of the annual meeting is first made by the corporation;
(2) file a definitive proxy statement with the SEC by the later of: (a) 25 days prior to the meeting date or (b) 5 days after the date that the corporation files its definitive proxy statement;
(3) solicit the holders of shares representing at least 67% of the voting power of shares entitled to vote on the election of directors and include a statement to that effect in the proxy statement or proxy card; and
(4) include in such stockholder’s initial notice to the corporation a statement that such stockholder intends to solicit at least 67% of the voting power of shares entitled to vote in the election contest. If that intention changes, such stockholder must notify the corporation promptly.
- Under Rule 14a-19(d), the corporation must provide the proposing stockholder with notice of the names of the corporation’s director nominees at least 50 calendar days prior to the anniversary of the previous year’s annual meeting;
- with the exception that if the corporation did not hold an annual meeting during the previous year or if the date of the meeting has changed by more than 30 days from the previous year, then notice must be provided no later than 50 days prior to the date of the annual meeting.
- Under Rule 14a-19(e), the proxy card in a contested director election must include the names of all nominees of each side in the contest, including any proxy access nominees, with the following requirements:
(1) the proxy card must state the maximum number of nominees that may be voted for, how the proxy recipient will treat proxy cards that vote for too many or too few candidates and how the proxy recipient will treat proxy cards that are signed but unmarked;
(2) the style of presentation (font type, style and size) must be uniform for all nominees; and
(3) nominees must be grouped together on the card according to the party nominating them and be listed alphabetically by last name within each grouping.
- Under Rule 14a-19(f), the proxy card may provide a means for the stockholder to vote for all nominees of either the corporation or the proposing stockholder as a group.
II. Considerations for Potential Bylaw Amendments
In response to the SEC’s new universal proxy rules, we recommend that corporations consider amending their bylaws to include the following provisions:
1. Explicitly require each proposing stockholder to comply with the requirements of Rule 14a-19 of the Securities Exchange Act of 1934, as amended, and provide the corporation with reasonable evidence of such stockholder’s compliance with Rule 14a-19.
2. Explicitly provide that the corporation shall disregard any proxies or votes solicited by a stockholder who fails to comply with Rule 14a-19.
3. Require each proposing stockholder to use a proxy card color other than white, which shall be reserved for exclusive use by the corporation.
4. Consider expanding the advance notice bylaw to require more detailed information on parties with whom the proposing stockholder is collaborating (including funding sources) instead of just information on the record and the beneficial owner.
5. Consider requiring the proposing stockholder’s notice to include a representation as to whether or not the proposing stockholder or any other with whom the proposing stockholder is collaborating will make any other proposal at the same meeting.
6. Require the proposing stockholder to provide information on whether there are any agreements between the proposing stockholder and the nominee or any other persons with whom the proposing stockholder is collaborating, including whether the nominee is a principal, employee or affiliate of the proposing stockholder or any other party with whom the proponent is collaborating.
7. Require the proposing stockholder’s notice to include such stockholder’s nominee’s consent to be named in the proxy statement relating to the meeting of the stockholders.
8. Consider requiring the proposing stockholder to provide information about such stockholder’s holdings of the corporation’s derivative positions and debt instruments.