Now that the Securities and Exchange Commission (SEC) has approved final rules regarding the inclusion of shareholder nominees in company proxy statements, proxy access is the law for most U.S. public companies.1 Eligible shareholders (or groups of shareholders) will be able to nominate director candidates without the expense and effort of mailing separate proxy materials. The proxy access rules will become effective on Nov. 15, 20102 and will apply to companies (other than small reporting companies) that mailed their 2010 proxy statements on or after March 15, 2010. Accordingly, most public companies need to prepare for the 2011 proxy season with proxy access in mind. As companies review the impact of the new proxy access rules, there are a number of important issues to consider.
Shareholder Dynamics
The SEC’s new proxy access rule—Rule 14a-11—gives proxy access to shareholders and shareholder groups who have collectively held at least three percent of the voting power of a company’s securities continuously for at least three years.3 Therefore, it is essential that companies actively monitor their shareholder base, and track changes in that shareholder base, in order to know who their major shareholders are and which, if any, shareholders may have similar interests that could lead them to aggregate their holdings to meet the three percent threshold. Companies should consider engaging outside assistance to help them identify holders who may be eligible to initiate, or may be inclined to participate in, the formation of nominating groups, as well as to gain additional transparency into the trading of their shares.
