ICBA - Publications - SEC Proposes Shareholder Access Rules

SEC Proposes Shareholder Access Rules

OCTOBER 10, 2003


SEC Proposes Shareholder Access Rules

The SEC proposed this week to permit shareholders to place their director nominees in a company's proxy materials in certain situations.

Currently, the only time that shareholders can nominate a candidate for the board is at the shareholder meeting since shareholders rarely have access to a company's proxy materials. Such nominations rarely succeed since, by that time, management has collected enough proxy votes to elect its slate of candidates. The SEC is proposing special shareholder access rules whenever a director receives more than 35% "withhold" votes in a director election or if a majority of votes cast support a shareholder proposal to activate shareholder access. If these special shareholder access rules are triggered, then for a two-year period, a 5% shareholder or shareholder group would have access to the company's proxy statements to nominate a director.

The proposed shareholder access rules would apply to all companies subject to the SEC's proxy rules. If the rules are adopted, the SEC says they could by triggered at a company's 2004 annual meeting, and then apply to the 2005 and 2006 annual meetings.