by Cydney Posner
Earlier this month, the Council of Institutional Investors filed a petition with the SEC requesting interpretive guidance regarding the proxy rules and rulemaking in connection with Form 8-K.
More specifically, CII requested the following:
- Staff guidance regarding proxy statement disclosure of voting requirements for items on the ballot and the presentation of voting options on proxy cards.
The proxy rules require companies to disclose “the method by which votes will be counted, including the treatment and effect of abstentions and broker non-votes…” CII believes that it would be useful to make these disclosures in “plain English” and eliminate any cross-references to external sources. For example, some disclosures require shareholders to refer to the bylaws, the charter and Delaware law to understand the disclosure. In addition, CII requests inclusion of a concise description of every component in the denominator used for the vote tabulation. Another troubling problem, CII contends, is the disclosure regarding voting for directors: some companies mischaracterize their voting standards as majority voting, when, in fact, the voting standard is plurality voting (or “plurality plus”), where a director who receives more withhold votes than votes in favor is expected to submit his or her resignation for consideration by the board. In some cases, voting standards described as majority voting in the proxy statement provide on the proxy card for votes “For” and “Withhold,” but not for “Against” votes as would typically be expected in majority voting. CII believes that “Staff guidance clarifying the need for alignment between the voting options on the proxy card for the election of directors and the voting requirement for a director to be elected” would be beneficial.
- Staff guidance regarding the descriptions of proposals on the proxy card.
The proxy rules require companies to “identify clearly and impartially each matter intended to be acted upon, whether or not related to or conditioned on the approval of other matters, and whether proposed by the registrant or by security holders.” However, CII argues, companies are sometimes not consistent or impartial in their descriptions as between management proposals and shareholder proposals. For example, companies often do not identify the general subject matter of shareholder proposals (e.g., proxy access), indicating instead only that there is a shareholder proposal and that it is described in the proxy statement, with little or no indication of the substance of the proposal. In contrast, the general substance of management proposals is typically clearly identified. CII requests that the Staff provide guidance clarifying the obligation to identify proposals “clearly and impartially.”
- Rulemaking to enhance the report on submission of matters to a vote of security holders.
Form 8-K Item 5.07 requires that companies report, within four business days after a shareholders meeting, the name of each director elected, a brief description of each other matter voted on, the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each matter, including a separate tabulation with respect to each nominee for office. However, CII contends, an examination of the results could require that shareholders toggle back and forth between the 8-K disclosure of results and the proxy statement’s description of the applicable voting standards. Accordingly, CII requests that Item 5.07 of Form 8-K be amended to require the following additional information:
— the voting requirement for each proposal, including the treatment of votes withheld, abstentions and broker non-votes
— the percentage support for each nominee or other voting item based on the voting requirement for each proposal
— whether each board nominee was elected or not elected
— whether each other voting item passed or failed to pass
— vote option terminology consistent with vote option terminology used on the proxy card
Even if the SEC does not take action on CII’s request, it would make sense for companies to take a look at their proxy disclosures and proxy cards to correct the types of errors and inconsistencies that CII has identified in the petition and to consider whether to voluntarily expand their disclosures to address any of CII’s other stated concerns.