SEC Chair White Discusses Building Meaningful Communication and Engagement with Shareholders (with Lofchie Comment)

SEC Chair Mary Jo White discussed proxy-related issues and ways to build better communication and engagement with shareholders in a speech delivered at the 69th National Conference of the Society of Corporate Secretaries and Governance Professionals.

Chair White's speech centered around four proxy-related topics that are being considered by the SEC in the interests of maintaining a fair and efficient proxy voting system: (i) the delivery of preliminary proxy voting results by intermediaries, (ii) a universal proxy ballot, (iii) "unelected" directors and (iv) shareholder proposals.

Chair White reminded her audience that, in advance of its annual meeting, a company seeks voting authority from those shareholders who do not plan to attend. Often, banks and brokers will retain an agent to send out requests for voting authority so that the agent can make preliminary vote tallies available to the company before the meeting. According to Chair White, this information allows the company to assess the "direction" of a vote and adjust its proxy solicitation strategy.

Chair White acknowledged recent calls for the SEC to either interpret existing rules or adopt new rules to clarify that brokers are obligated to require their agents to deliver preliminary vote tallies to all interested participants. Chair White stated that the current SEC rules are "silent" on preliminary vote tallies, but encouraged companies to "engage in a constructive dialogue" with shareholders and facilitate solutions to this issue.

Chair White also spoke about universal proxy ballots. She stated that "renewed discussion" has explored whether the proxy rules "provide shareholders with a sufficient range of choice in exercising voting decisions in election contests if they are voting by proxy rather than in person." She noted that some have requested revisions to the proxy rules to require the use of a universal proxy ballot. The requested ballot would list both management and a proponent's nominees in contested director elections, allowing shareholders to vote for a mix of nominees of their own choosing.

Chair White went on to discuss "unelected directors," or directors who do not receive a majority of shareholder votes but who continue to serve on the board. Chair White asked what the presence of such directors says about a company's general responsiveness to its shareholders. In any event, Chair White said, "whether an individual can remain on the board following an election where they do not receive majority support is a question of state law and the governance decisions made by boards." She stated that the SEC could address the issue by amending the rules to mandate more specific disclosures about certain board decisions, but contended that a "company that is serious about good corporate governance should provide such information on its own."

Lastly, Chair White discussed Exchange Act Rule 14a-8 ("Shareholder Proposals") as it relates to proxy access proposals. She stated that the decision by the Division of Corporate Finance to express no view on the application of the rule was not made lightly, but emphasized that it is important for the SEC to address the issues surrounding the rule correctly. She encouraged firms to consider other possible steps to address proposals, including "foregoing technical objections." She stressed that shareholders who are concerned about an issue should seek engagement with their company first before turning to a shareholder proposal.

Lofchie Comment: An unusual confluence of SEC Commissioners seem to be giving speeches on the same topic.

See: SEC Chair White's Remarks.Related news: SEC Commissioner Gallagher Discusses "Short-Termism" in Relation to Activism (with Lofchie Comment) (June 23, 2015); Commissioner Stein Discusses "Short-Termism" and Boards of Directors' Composition (with Lofchie Comment) (May 1, 2015).