Chamber Tells SEC Universal Ballots Will Lead to Proxy Fights, More Disruption

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By Yin Wilczek

Feb. 18 — The U.S. Chamber of Commerce Feb. 18 urged the SEC not to require universal proxy cards at public companies, saying the action would only increase “the frequency and ease of proxy fights.”

In a letter to Securities and Exchange Commission Chairman Mary Jo White, the chamber's Center for Capital Markets Competitiveness said the agency historically has remained “neutral” with respect to interactions between companies and their shareholders.

“We do not understand why the SEC would now pursue a policy that would increase the regularity of contested elections or cause greater turnover in the boardroom,” the chamber said.

Proxy Roundtable 

The SEC Feb. 19 held a proxy roundtable to consider, among other topics, whether changes should be made to its proxy rules to facilitate the use of universal proxy ballots by management and proxy contestants. 

Investors voting by proxy cannot “split their ticket” by picking and choosing between candidates on the management slate and those supported by shareholder proponents.

In January 2014, the Council of Institutional Investors petitioned the SEC for amendments to 1934 Securities Exchange Act Section 14 to create a “fairer voting process” for proxy contests. The group urged the commission to eliminate the requirement to obtain a nominee's consent to be named on a proxy card in contested elections and to allow shareholders to vote for their preferred combination of shareholder and management nominees on a single card.

This would ensure “that investors voting by proxy have the same practical ability to vote their shares for their preferred mix of nominees that they would have if they attend a shareholder meeting in person,” the CII said in the petition.

The SEC also is mulling a more limited fix recommended by its Investor Advisory Committee (IAC). In July 2013, the IAC suggested that the commission provide proxy contestants with the choice of using universal ballots in connection with short slate director nominations.

At least one SEC commissioner has come out in support of universal ballots. In a May 2014 speech, Commissioner Kara Stein said the SEC should allow, if not mandate, universal proxy ballots to ensure that shareholders who don't attend meetings aren't “stratified”.

Shareholder, Corporate Detriment?

In its letter, the chamber suggested that universal proxy cards may enable a “small vocal minority” to advance their “own parochial agenda” without regard to the broader interests of the company or other shareholders.

“Proxy contests are significantly disruptive to public companies, often to the ultimate detriment of their investors,” the chamber said. “Promoting proxy contests should not be a goal of the SEC, as boards of directors would be increasingly forced to focus a company’s resources in support of board-nominated candidates, detracting from managing and overseeing company business.”

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The chamber's letter is available at http://op.bna.com/car.nsf/r?Open=ywik-9tusw2.