Proxy Access – Developments in Market Practice: Market-Standard Terms and Conditions Emerge for Company Bylaws; SEC Staff No-Action Letters Provide Additional Support

Sullivan & Cromwell LLP - April 8, 2016

Looking back at the proxy access provisions adopted by U.S. companies over the past year, it is clear that there is convergence around most key terms and conditions, including exceptions and details that are not contemplated by most shareholder proposals. While this convergence does not mean that market practice will stop developing or that governance advocates will cease fighting terms that they find objectionable, companies considering whether to adopt a proxy access provision now have the benefit of significant precedents.

In addition, no-action letters issued by the staff of the Securities and Exchange Commission in February have confirmed that a company that receives a typical 3%/3-year shareholder proposal should be able to adopt a proxy access bylaw with market-standard terms and conditions and then exclude the shareholder proposal as “substantially implemented.” While governance activists have submitted, and will likely continue to submit, shareholder proposals requesting that companies modify their bylaws to remove some of these terms and conditions, the only proposal that has come to a vote to date has failed, receiving 40% of votes cast at Whole Foods.

We have attached as an annex a sample form of proxy access bylaw that companies can use as a starting point in crafting their own. This has been updated to reflect developments in market practice and ongoing discussions with clients.