New SEC Universal Proxy Card Rules and Recent ISS Guidance Underscore Need for Careful Consideration of Directors and Shareholder Preparedness

September 14, 2022

In late 2021, the SEC adopted new rules relating to the use of universal proxy cards. Under the rules, which apply to shareholder meetings after August 31, 2022, both public companies and activists must now use a universal proxy card when soliciting the election of directors that includes the names of both company and activist nominees, so that shareholders will be able to give proxy voting instructions in favor of any combination of candidates properly nominated candidates by either constituency up to the number of authorized seats for election. This will now allow shareholders to vote in favor of any combination of candidates.  Previously, shareholders received separate proxy cards from the company and activists that each included only the respective parties’ different slates.  The new rules make it significantly easier for activist shareholders to get their slates in front of the voting shareholders.

Last month, Institutional Shareholder Services (ISS), one of the leading proxy advisory firms, issued guidance on how the universal proxy card can help activist shareholders launch and succeed at proxy fights.  Here is a summary of the guidance:

  • ISS’s current two-prong framework for assessing the merits of a dissident proxy campaign will continue without significant change.  The two-prong framework asks (1) is there a case for change and (2) if so, how much. ISS has stated “an activist leading with a brilliant nominee but a weak case for change will be less successful than the activist who leads with a detailed, insightful argument as to why a company may not be performing as well as it should . . . .”
  • The second prong — “how much change” — will become more significant, as activists may now “more precisely adjust board composition” by choosing or “mixing and matching” among both company and activist director nominees.
  • ISS emphasized the importance of qualifications of individual nominees.  This suggests that ISS will review all candidates and may in fact come up with recommendations that include both company and activist candidates.
  • ISS stated that because the universal proxy system allows shareholders to precisely mix and match nominees, boards will be “far less able to shield their weakest contributors.” Specifically, they mentioned the potential for replacement of a “long-tenured, over-boarded director who seems disengaged with a new nominee who brings clearly-relevant skills to the board, or perhaps enhances diversity.”

These observations suggest that the universal proxy system may facilitate a shift in the focus of proxy campaigns from the quality of a party’s overall slate to the quality of individual director candidates. This could put a company’s weakest candidates at risk.


Given the ISS guidance, here are some recommendations for both the nominating committee and the board itself:

  • Consider implementing or strengthening controls to monitor the quality and qualifications of directors. Given that weaker candidates may be subject to increased scrutiny and attack, review an individual’s qualifications before he or she is up for re-election.
  • Review the published criteria of proxy advisory firms on a regular basis to ensure that the criteria are satisfied.  These criteria are numerous and include directors’ ages, tenure, diversity status, specific qualifications, diversity of experience, and degree of engagement on the board.
  • Amend your bylaws to incorporate the new SEC Universal proxy card rules.  The new SEC rules are found in new Rule 14a-19. Amendments to corporate bylaws can, among other things, require an activist shareholder relying on Rule 14a-19 to confirm its compliance with the rule on the company’s request and confirm that the company will disregard proxies solicited by the activist shareholder if it fails to comply with the rule.
  • Review your activist shareholder activist preparedness.  It is likely that companies will be fighting (or at the least negotiating with) activists on a more frequent basis.  Be ready by reviewing your defenses.

As with many other aspects of sound corporate governance, being prepared for the new rules requires preparation and thoughtful response.  Companies should consider engaging in planning now rather than waiting until proxy season is upon us.

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