NYSE Limits Broker Voting on Corporate Governance Proposals
January 25, 2012
On January 25, 2012, the New York Stock Exchange LLC and NYSE Amex Equities LLC (collectively, the “NYSE”) announced
a change in the application of Rule 452 to certain types of management-supported corporate governance proposals that will further restrict the ability of brokers to vote their customers' shares. Rule 452 establishes the circumstances in which a broker may vote its customers’ shares in the absence of specific instructions. Rule 452 permits this discretionary voting of uninstructed shares in “routine” matters and prohibits it in “non-routine” matters.
Given the recent regulatory disfavor toward the voting of uninstructed shares, the NYSE has further narrowed the types of routine proposals on which brokers may vote customers’ uninstructed shares to exclude management-supported proposals regarding matters such as:
- declassifying a company’s board of directors;
- majority voting on the election of directors;
- eliminating supermajority voting provisions in a company’s governing documents;
- providing for the use of written consent;
- providing the right to call a special meeting; and
- certain types of anti-takeover provision overrides.
One practical implication of the NYSE’s new position is that companies may face increased difficulty in obtaining the necessary support for these governance proposals. This could especially impact companies seeking support for proposals requiring approval of a majority (or greater) of the shares outstanding, such as proposals seeking to amend the certificate of incorporation to implement a specified corporate governance change (for example, board declassification or the right of shareholders to act by written consent). On these proposals, the resulting broker non-votes will have the effect of votes against the proposal. Companies seeking support for proposals that are subject to a typical default vote standard (such as the default Delaware standard of a majority of the shares represented and entitled to vote on the matter or a majority of the votes cast standard) may also feel an impact from this change because brokers who historically voted uninstructed shares in accordance with management’s recommendation (whether on an absolute or proportional basis) will no longer be permitted to exercise discretion to vote uninstructed shares in favor of these proposals. The impact will be more severe for companies with governing documents (or subject to state laws) requiring supermajority approval for revisions of the specified governance provision in their certificate of incorporation or bylaws.
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For questions regarding this alert or the application of NYSE Rule 452 to your company, please contact the authors or your O’Melveny & Myers advisor.