Considerations in Adopting Proxy Access Bylaws – Update: Including List of Considerations, Summary of Precedents and Sample Bylaw

Sullivan & Cromwell LLP - February 13, 2015

U.S. public companies are under continued pressure from certain shareholder groups to adopt proxy access provisions allowing shareholders to include their nominees in company proxy materials.  The SEC staff’s recent decision to suspend no-action relief expressly supporting the exclusion of shareholder proposals that conflict with management proposals has introduced further uncertainty into the process by which proxy access proposals will come to a vote.

Given the early stage of the development of market practice, there is little benefit at this time for most companies to propose or adopt a proxy access provision.  Companies that have received a shareholder proposal on proxy access, however, might find themselves considering doing so as part of their response.  These companies are faced with a range of options, including:  excluding the shareholder proposal notwithstanding the unavailability of no-action relief; simply allowing the shareholder proposal to come to a shareholder vote; putting up conflicting shareholder and management proposals for a shareholder vote; or unilaterally adopting a proxy access provision with terms that the company believes are more appropriate and arguing that shareholders should vote against the shareholder proposal.  Each of these options has its advantages and disadvantages.

Companies that have received a proxy access shareholder proposal and are considering proposing or adopting their own proxy access provision will want to consider the appropriate terms and requirements for proxy access, including potential limitations and conditions designed to prevent abuse.  To assist companies in this process, we have attached as Annex A a summary of the key terms of the small number of proxy access provisions adopted by public companies so far, and have attached as Annex B a sample form of proxy access bylaw that companies can use as a starting point in crafting their own.