Jill Radloff, of Leonard, Street and Deinard, focuses her practice on the areas of corporate and securities law and has written a brief guide for companies that shareowners will also find useful, You Received a Proxy Access Notice — Now What?
Upon receipt of a notice of a shareholder nominee under the proxy access rules, public companies have a series of decisions to make with tight time lines imposed by the new proxy access rules. Decisions will have to be made beginning on receipt of the notice and will continue through the filing of the proxy statement, the solicitation period before the meeting and at the shareholders’ meeting itself.
Public companies will generally become aware through the filing of a Schedule 14N on EDGAR by a nominating shareholder or shareholder group. Schedule 14N includes a variety of information, including information about the nominating shareholder, the nominee and a statement of up to 500 words supporting the nominee.
Upon Receipt of a Proxy Access Nominee
The first step to take is to verify the eligibility of the nomination. Public companies should take the following steps:
- Determine whether the nomination was submitted during the required window period. Generally the window period is not more than 150 calendar days and not less than 120 calendar days before the anniversary of the date the company mailed its proxy statement for the prior year’s annual meeting.
- Verify that the shareholder or shareholder group owns the requisite securities and has held them for the requisite period of time. Under Rule 14a-11(b)(1), the shareholder or group must own at least 3% of the voting power of the company’s securities that are entitled to be voted on the election of directors at the annual meeting of shareholders. The shares used to satisfy the minimum ownership requirement must have been held continuously for at least three years as of the date of the shareholder notice on Schedule 14N. Proof of ownership can include record ownership (which an issuer can verify with the transfer agent) or referencing Schedule 13D, Schedule 13G or Forms 3, 4 or 5. In addition, the nominating shareholder or group can attach a statement to Schedule 14N from brokers or banks stating that the nominating shareholder continuously held the securities used to satisfy the ownership requirement for three or more years.
- Verify that the remainder of Schedule 14N has been prepared in accordance with the rules. For instance, Rule 14a-11(b)(4) requires a statement by the nominating shareholder or each member of the shareholder group that such persons intend to continue to hold the securities used to satisfy the minimum ownership requirement through the date of the shareholders’ meeting. Likewise, under Rule 14a-11(b)(5) the nominating shareholder or group must include a statement of intent with respect to continued ownership after the election of directors.
It is possible that a company may receive nominations from more than one shareholder or shareholder group. In that instance, Rule 14a-11(e) specifies that the number of available nominations are filled based on those proposed by the nominating shareholder or group with the highest qualifying voting power percentage disclosed as of the date of the filing of the Schedule 14N. The rule permits the nomination of the greater of one director or 25% of the registrant’s board of directors. If multiple nominations are received, issuers will want to verify all nominations as discussed above and determine the order of priority.
As we have noted, the proxy access rules grant nominating shareholders and groups exemptions to the proxy solicitation rules. During this period and through the shareholders’ meeting, we recommend that public companies monitor the solicitation activities of nominating shareholders and groups for violations of the proxy rules.
Radloff goes on to provide similarly good advice on Excluding a Nominee, New Rules for the Proxy Card, Between Fling the Proxy and the Shareholders’ Meeting, and The Shareholders’ Meeting.