The U.S. Securities and Exchange Commission adopted rule changes today designed to facilitate the rights of shareholders to nominate directors to a company’s board.

The new rules require companies to include the nominees of significant, long-term shareholders (defined as shareholders that have owned at least 3% of the company’s shares continuously for at least the previous three years) in their proxy materials, alongside the nominees of management.

The SEC said that this “proxy access” is designed to facilitate the ability of shareholders to exercise their rights to nominate and elect members to company boards.

Also, under the rules, shareholders will have the ability to use the shareholder proposal process to establish procedures for the inclusion of shareholder director nominations in company proxy materials.

For small companies, application of the new rules will be deferred for three years, the commission noted.
“As a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own,” said SEC chairman, Mary Schapiro. “Nominating a director candidate is not the same as electing a candidate to the board. I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfill the responsibilities of serving as a director. The critical point is that shareholders have the ability to make this choice.”

The new rules will become effective 60 days after their publication in the Federal Register.

IE