Universal Proxy Card – Long Time Coming

On November 17, 2021 the SEC approved amendments to federal proxy regulations, effective August 31, 2022, which will require the use of a “universal” proxy card for public company shareholder meetings involving contested director elections.  This means both the company and activist investors will have to send shareholders the same proxy card, including directors nominated by both parties.  As a result, shareholders will be able to vote for selected directors from either camp in a single step.

Previously, the company sent out its proxy material and proxy card (or voting instruction form), and activists sent out theirs.  Shareholders could vote for one or the other slate of directors, but not a mixture of them.  Now, the one card will give shareholders the full menu of all validly proposed directors.  Moreover, the new rules will require both the company and the “the other side” to apprise shareholders of the other side’s proxy statement, thus providing key information about both sides’ directors.

Who will gain from the universal proxy card?  Certainly activists, so expect “activism” to increase in the Fall 2022 proxy season (and beyond); and shareholders generally, being not so bombarded by “we versus they” voting campaigns.  Also proxy advisors, who would much rather recommend “for” a mixed slate of directors than for one or the other.  Who will lose?  Companies, to the extent they have to include (and pay for the inclusion of) directors often anathema to them, although the cost to “fight” their inclusion – immediate and relating to the whole shareholder meeting process – should go down; and the law firms who have made a boatload of money for years off the whole multi-card approach.  Maybe financial printers too.

Having said this, the jury is out on whether the universal proxy card will live up to its reputation as a leveler of the playing field, cost cutter and streamliner of the proxy process in contested director elections.  We recall the warning issued by then SEC Commissioner Michael Piwowar in 2017, who wanted the universal proxy card concept to die a peaceful death, fearing unintended consequences such as the universal card not actually offering the “right mix” of director nominees.  We will see.