Universal Proxy Cards

Universal proxies are coming to proxy contests in September 2022

CII welcomed the SEC’s approval November 17 of final rules requiring universal proxies in contested elections for seats on public company boards.

When a director election has more nominees than available board seats, shareowners typically receive two versions of the proxy card: one from the company and one from the shareholder who nominated the alternative candidate(s). Each card provides a unique list of nominees, neither list is complete, and shareowners are prohibited from using both cards to vote. Thus, depending on the combination of candidates a shareowner supports, he or she may be disenfranchised.

"Universal" proxy cards solve this problem by listing all duly nominated board candidates, allowing shareowners to vote for the precise combination of nominees they wish to represent them. That precision is vitally important in proxy contests, when board seats (and in some cases, board control) are at stake.

The origin of the newly adopted rules dates back to a 2014 CII rulemaking petition that reflected CII’s member-approved policy endorsing universal proxy cards in contested elections at U.S. public companies. After filing the petition, CII drafted more than 20 letters and testimony in support of universal proxies, including its most recent June 2, 2021, correspondence.

Under the new final rules, universal proxy cards must include all director nominees presented by management and shareholders for election at shareholder meetings held after Aug. 31, 2022. To facilitate the use of these cards, the commission amended the current proxy rules so each side can list the other side’s director candidates.

The new rules also prohibit companies that have not adopted a true majority vote standard from including an “against” voting option on their proxy card because such votes have no legal effect. Companies that use a plurality standard must indicate a “withhold” option and disclose the treatment and effect of this vote in the election. CII had pressed the SEC on this mislabeling since 2015, when it submitted a rulemaking petition on the matter.

The first reciprocal universal proxy election in the U.S. occurred in July 2019 between Rice Team and EQT. (Although in 2018 Sandridge Energy circulated a universal card, the company did not grant the dissident the authority to do likewise.) 

As shown in the graph (click to enlarge), contested elections are exceedingly rare in the United States. Based on recent contests going to a vote in the Russell 3000 index, the SEC's new rule would have no impact on 99% of director elections.

Universal Proxy Working Group letter to SEC
Proxy Plumbing Recommendation invoking need to finalize universal proxy: SEC Investor Advisory Committee
Universal Proxy Gains Traction: MacKenzie Partners
CII corporate governance policy on universal proxy cards