SEC Further Extends Shareholder Rights

After much debate, last month the SEC incorporated New Exchange Act Rule 14a-11, which enables shareholders who own at least 3 percent of company stock for at least three years to have their board nominees appear in proxy materials alongside management's nominees. These measures, commonly referred to as "proxy access," follow the enactment of the Dodd-Frank Wall Street Reform and Protection Act and further facilitate choice and control on the part of shareholders. While these nominations by no means guarantee election, they do give equal placement of candidates and make the nomination process a lot easier and less expensive. This is a practice that has been standard in many countries for years and discussed here since 2003, but will be new in the United States for the 2011 proxy season.

SEC Chairman Mary Shapiro resurrected the campaign for process access when she took the office in 2009 and noted that the new proxy access rule would “enhance investor confidence in the integrity of our system of corporate governance.”

Shareholders will be limited the greater of one nominee or a number that represents up to 25 percent of the company's board and will be able to submit no later than 120 days before the anniversary date of the mailing of the prior year's proxy.

Aside from "smaller reporting companies" - those with a public float of $75 million or less - which will have three years before these rules are incorporated, these rules should be in place in about two months. On the heels of a year when director biography requirements were expanded and higher numbers of directors received negative votes than in recent history, it will be interesting to see what kinds of shifts in corporate governance will be seen and what effect this may have on compensation and risk management.