Proxy Access

CII supports providing long-term shareowners access to the company's proxy to nominate director candidates consitituting less than a majority of the board.

"Proxy access" is shorthand for the ability of a long-term shareowner (or a group of long-term shareowners) to place a limited number of alternative board candidates on the company's proxy card (ballot) for the company's annual shareowner meeting. Proxy access also allows the nominating shareowner to provide a brief description of each alternative candidate in the proxy card's accompanying document, known as the proxy statement.

Proxy access generally is available only to shareowners who have collectively held at least 3 percent of outstanding shraes for at least three years. Proxy access is very rarely invoked, but its availabilty makes boards more vigilant in their oversight of management and more responsive to the preferences of the company's owners. 

Proxy access should not be confused with a proxy contest, whereby a dissident shareowner circulates an alternative proxy card with a rival slate of board candidates. Proxy access involves only one proxy card, reducing the confusion and expenses associated with dueling cards. Another key difference is that proxy access has a substantial long-term ownership requirement, whereas any shareowner who is willing to bear the cost can launch a proxy contest. Also of critical divergence, proxy access accommodates only minor board tunrover (typically no more than two directors or 20 percent of the board, whichever is greater); a proxy contest gives the nominating shareholder the option of pursuing a change-in-control. 

Congress paved the way for a uniform proxy access mechanism by including a provision in the Dodd-Frank Act that reaffirmed the authority of the Securities and Exchange Commission (SEC) to issue a proxy access rule. In August of that year, the SEC approved a proxy access rule aimed at making it easier for shareowners to nominate their own candidates for director, but a lawsuit challenging the rule succeeded and the SEC vacated its proxy access rule before it had ever taken effect. Shareowners may, however, file shareholder proposals seeking proxy access on a company-by-company basis. Although non-binding, these proposals have spurred many companies to embrace proxy access through private ordering.

Today, proxy access is available in some form at over two-thirds of S&P 500 companies but less than one-fifth of Russell 3000 companies. Recent shareholder advocacy related to proxy access has focused on amending provisions already in place. For example, proponents have sought to amend provisions allowing for only one director to be elected to the board via proxy access, and provisions capping the number of shareholders that can aggregate holdings for the purpose of qualifying under the ownership requirement.

Given the high support for shareholder proposals to adopt proxy access, some observers predict that over time, the mechanism will become more common among small- and mid-cap companies. However, investors have shown reluctance to use the access mechanisms available to them, and this likely factors into proponents' decisions on where to concentrate their attention.  

Proxy Access: CII Best Practices

Proxy access bylaws  - company-specific details on access mechanisms gathered by Covington & Burling