Universal Ballots Could Change Stakes for Proxy Fights

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By Andrea Vittorio

Oct. 25 — Corporate America may be told to change its ballots as U.S. voters gear up to cast theirs.

The corporate equivalent of absentee ballots, known as proxy cards, could include candidates for board seats put forth by management as well as competing nominees from investors under rule changes to be considered Oct. 26 by the Securities and Exchange Commission.

Having one “universal” proxy ballot, rather than two separate ones as is typically done now, could change the stakes in activist campaigns.

“In recent years, some have asked why in a proxy contest there are two dueling proxy cards instead of one card with all of the director candidates listed,” said Elizabeth Ising, a partner in Gibson, Dunn & Crutcher LLP’s Washington office who counsels public companies on shareholder activism issues. Ising likened it to Election Day, when voters can “pick and choose” among candidates on the ballot.

“The SEC’s current rules limit the ability to use a single proxy card for all candidates in a contest,” Ising told Bloomberg BNA.

More Proxy Fights Coming?

Universal ballots are seen as a way to level the playing field for retail and institutional investors who can't easily show up to vote in person.

“This is about freedom of choice,” Amy Borrus, deputy director at the Council of Institutional Investors, said. The council petitioned the SEC in 2014 to require universal ballots in contested elections (13 CARE 532, 3/13/15).

“In a proxy fight, investors should be able to vote for the director nominees they want to represent them, regardless of which slate those candidates are on,” Borrus told Bloomberg BNA.

The trend today is toward fewer fights and more settlements between boards and activist investors, according to State Street Global Advisors. Less than 10 percent of board seats conceded in an activist campaign in 2015 and 2016 were the result of a proxy contest, down from 34 percent in 2014.

“Right now, it’s expensive, you have to hire lawyers and solicitors, and there’s no guarantee that you’ll win,” said Keir Gumbs, a Washington-based attorney who was former counsel to an SEC commissioner and now vice chair of Covington & Burling LLP's Securities and Capital Markets Practice Group. “Your chances go up dramatically” if companies are required to include an activist’s nominees alongside theirs, he told Bloomberg BNA.

‘Proxy Access on Steroids.'

If the SEC proposes changes to its proxy rules, the details that may be sorted out include: when universal ballots can be used, whether they would be mandatory and what the eligibility requirements would be for shareholders who want to use them.

The commission’s investor advisory committee has recommended making universal ballots optional and only for use in “short slate” elections, when outside candidates wouldn't control the board if elected. Mandatory use, the committee said, “could be viewed as a new form of shareholder proxy access.”

About 40 percent of S&P 500 companies have adopted some form of proxy access, which typically allows investors who own at least 3 percent of stock for three years to nominate their own board candidates on the company’s proxy ballot.

“Universal ballot is proxy access on steroids,” Tom Quaadman, executive vice president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, told Bloomberg BNA. Boards could end up with members who aren't acting in the best interests of shareholders or the company, he said.

Congressional Republicans have already tried to block the SEC from working on universal ballots by attaching a rider to a House-passed funding bill (90 CARE, 12/17/15). The White House has threatened to veto the legislation.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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