Currently, where a matter requires shareholder approval under NYSE rules, the minimum vote required is a majority of the votes cast on the matter. But how do you count votes cast? Do you count abstentions? What about broker non-votes? The NYSE has historically advised that broker non-votes do not count as votes cast, but abstentions do. That means that, under the NYSE rules, approval requires that the votes in favor exceed the aggregate of the votes cast against the proposal plus abstentions. Unfortunately, that’s not how “votes cast” is typically defined for Delaware corporations. If Delaware corporations elect in their charter or bylaws to use a “votes cast” standard, abstentions are generally not counted as “votes cast”—because an abstention reflects a decision not to vote on the matter and the holder has not cast those votes—with the result that, for a proposal to be approved, the votes in favor of the proposal must exceed the votes cast against. Confused? You’re not alone. The NYSE has “observed that this approach has caused confusion among listed companies.” That’s why the NYSE has just filed with the SEC a proposal to amend that provision of the NYSE Listed Company Manual. [Update: This proposal has been approved.]
As noted above, Section 312.07 of the NYSE Listed Company Manual currently provides that, “where shareholder approval is a prerequisite to the listing of any additional or new securities of a listed company, or where any matter requires shareholder approval, the minimum vote which will constitute shareholder approval for such purposes is defined as approval by a majority of votes cast on a proposal in a proxy bearing on the particular matter.” Section 312.07 is currently applicable to shareholder approval as required under Section 312.03 of the Manual as well as equity compensation plans under Section 303A.08. As noted above, although the rule does not specify how abstentions should be treated, the NYSE has historically advised that abstentions should be treated as votes cast.
The proposal would amend Section 312.07 to provide that a company must calculate “votes cast” on a proposal subject to Section 312.07 in accordance with its own governing documents and any applicable state law. The NYSE “believes that this treatment of abstentions will avoid any complications engendered among issuers and shareholders when different voting standards are applied under the Exchange rule, a company’s governing documents, and/or applicable state laws.” Notably, the Nasdaq rule provides a comparable treatment. Nasdaq is silent with regard to whether abstentions should be treated as votes cast, but has published an FAQ that states that “a company must calculate the ‘votes cast’ in accordance with its governing documents and any applicable state law.”