Proxy Access May Weigh Heavy on Smaller Reporting Companies 09/13/2010Posted by Morse, Barnes-Brown Pendleton in Legal Developments.
Tags: proxy access, SEC
By Daniele Levy
In late August the SEC adopted long awaited proxy access rules. The rules provide 3% (or greater) stockholders who have held the interest for at least three years with the right to include director nominees in the company’s proxy statement for up to 25% of the seats on the Board of Directors. While the rules will affect the 2011 proxy season for most companies, the SEC has stated that the rules will not apply to smaller reporting companies for the first three years.
The SEC’s stated goal was to provide significant long-term shareholders with access to a company’s proxy statement in order to solicit votes for director nominees. However, the rules may have an unintended consequence in that it is likely the affect of the rules will be felt more strongly by smaller reporting companies. The reason is simple. Because the rules require a shareholder to hold a 3% stake in a company for a period of three years, it will be much easier for stockholders looking to include director nominees in company proxy statements to meet the 3% threshold in a smaller reporting company (defined as a company with less than $75M in public float) than in a company with a larger market cap.
Stay tuned during the 2011 proxy season and beyond to see how proxy access works in practice.
For more information on the new proxy access rules, please contact Daniele Levy.