New Proxy Access Rules for 2011: What They Are and What Public Companies Need to Do Now

Including a look ahead to other Dodd-Frank Act proxy or executive compensation related new rules

On August 25, 2010, the SEC adopted new proxy rules that are expected to be effective for most public companies for the 2011 proxy season. The new rules facilitate shareholder access to director nominations by requiring public companies subject to the new rules to include in their proxy materials director nominees proposed by certain shareholders. Although the SEC has limited the shareholders who may use these new rules to those that meet long-term, significant ownership thresholds (generally 3 percent, with a three-year holding period), this new direct access to the use of a company's proxy materials is material because it greatly reduces the costs and procedural challenges involved in proposing a director nominee and, therefore, makes it more likely that a shareholder meeting the threshold requirements, or a group of shareholders owning smaller amounts banding together, will nominate its own director candidates. The new rules also amend certain existing proxy rules to provide that public companies may not exclude from their proxy materials shareholder proposals that seek to establish even less restrictive proxy access procedures, which could reduce the requirements for access.

Although the SEC had previously proposed the proxy access rules in 2009, the SEC was no doubt spurred into finally adopting these rules by the passage on July 21, 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act's enabling legislation. In addition to the new proxy access rules, public companies should also be focusing on the various other proxy and executive compensation related matters that have been mandated by the Dodd-Frank Act. A brief summary of these matters, some of which will also be effective for the 2011 proxy season, are described below.

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