American shareholder democracy is coming to life. The Securities and Exchange Commission last week approved the “universal power of attorney”, which apparently simplifies the Byzantine rules governing elections of corporate directors.
Until now, dissident shareholders who wanted to win board seats had to go at the expense of preparing and sending out competitive ballots. This process was cumbersome and could confuse investors. The universal power of attorney will ensure that all board candidates appear on all Annual General Meeting (AGM) ballot papers. Rather than forcing shareholders to choose one or another list, universal proxies will enable them to pick and choose candidates.
One possible consequence of the simplification is that fringe forces will find it easier to burst into the council chamber. The rules will come into force at the end of 2022. But experts are already warning their corporate clients to prepare for more barbarians trying to break through the bottom gates.
In some areas of shareholder activism, the SEC makes it difficult to complicate public companies. For example, to submit a shareholder proposal to an AGM, an investor must have held a minimum percentage of shares for a period.
There will be no such requirements to nominate any director candidates. To ensure that challengers are serious, the SEC requires them to actively recruit at least 67 percent of the voting power of shares eligible to vote. But even that requirement can be satisfied simply by posting the proxy material on a website. SEC calculations suggest that a proxy competition could cost as little as $ 10,000, up from millions of dollars previously, one law firm noted.
The SEC has taken the heavy cost burden out of challenging management. But it runs the risk of forcing companies to entertain the whims of gadflies. Whether the measure ultimately proves a nuisance or a healthy check from incumbents, there are definitely a few beneficiaries. Expect those who operate the machinery of AGMs – lawyers, tellers, PR firms – to be the biggest winners.
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