Proxy Access Proposals – Review of 2012 Results and Outlook for 2013: Shareholder Proposals Failed at Most Companies in 2012, but More Widespread Efforts, and Greater Success, Could Occur in 2013; Companies Should Consider Potential Advance Actions

Sullivan & Cromwell LLP - June 19, 2012 (Updated as of July 9, 2012)

Pursuant to SEC rule changes that took effect in September 2011, shareholders are now permitted to submit and vote on “proxy access proposals” – that is, proposals to give shareholders the right to include director nominees in the company’s proxy materials. Over 20 such shareholder proposals (half of which were binding) were submitted during the 2012 proxy season, of which only eight have come to a vote. Many of the proposals that did not come to a vote were deemed excludable from proxy statements by the staff of the SEC for a variety of technical reasons. We have included on the following page a chart of the terms and outcomes of proxy access proposals submitted to date.

The vote results from this limited pool suggest that shareholders are hesitant to approve proposals that would give a proxy access right to holders of a small number of shares, but are more supportive of proposals that have ownership requirements that are similar to the 3%/3-year threshold that would have applied under the SEC’s now-vacated mandatory proxy access rule.

With the benefit of lessons learned in 2012, it seems likely that proponents will formulate more potent proxy access proposals in the future – both by avoiding the problems that allowed companies to exclude the proposals under SEC rules and by including thresholds that will achieve broader shareholder support. Companies should begin thinking about steps to prepare for and respond to such proposals, including maintaining a dialogue with key shareholders and monitoring market trends in this area. In addition, companies may wish to consider the terms of a proxy access provision that might be acceptable to the company. Although there seems to be little benefit to the unilateral adoption of a proxy access provision on a preemptive basis, there may be a benefit to a company in putting its own proxy access proposal up for a shareholder vote at an annual meeting, particularly because doing so should permit the exclusion of a conflicting shareholder proposal. We summarize at the end of this memorandum certain steps companies should consider taking, including potential terms that a company might find desirable if it were to put forth its own proxy access proposal.

Sullivan & Cromwell LLP will host a client podcast this summer to discuss proxy access, say-on-pay and other 2012 proxy season developments. Information on this podcast will be disseminated separately.