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US SEC Passes Proxy Voting Reforms, New Data Requirements on Their Way in 60 Days

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The US Securities and Exchange Commission (SEC) has passed a reform this week that issues additional rights to “long term” shareholders, who own or have owned continually for three years and have at least 3% of the company’s voting stock, to be able to nominate candidates to the boards of the companies they own. As well as its more obvious outcomes, this new measure will effectively add a new set of data items to be monitored at a group wide level for proxy voting purposes in order to determine who is characterised as a long term shareholder.

Following the customary 60 day implementation period, long term shareholders will be able to nominate one candidate or 25% of the board, whichever is greater. The change is aimed at tackling shareholder fairness and accountability issues, but has proved controversial within the political sphere.

According to the SEC: “Under the final rules, shareholders who otherwise are provided the opportunity to nominate directors at a shareholder meeting under applicable state or foreign law will be able to have their nominees included in the company proxy materials sent to all shareholders. Shareholders also have the ability to use the shareholder proposal process to establish procedures for the inclusion of shareholder director nominations in company proxy materials.”

Under the rule, companies will therefore be required to include shareholder nominees for directors in the company’s proxy materials, if the shareholder meets certain conditions, and if the shareholders are not otherwise prohibited – either by applicable state or foreign law or a company’s governing documents – from nominating a candidate for election as a director.

Accordingly, the new powers for these shareholders come with an additional set of data requirements for those charged with dealing with proxy voting measures and corporate actions processing. Not only will firms have to deal with the data that is produced from long term shareholders nominating board members, they will also have to keep an eye on who qualifies to be a long term shareholder in the first place.

Last year, SEC chairman Mary Schapiro launched a comprehensive review of the US proxy system in order to determine a more transparent, accurate and efficient method of registering shareholder votes during corporate actions events. As part of this process, in July, the regulator issued a concept release requesting comments from the public and the industry about the current state of play with regards to: the accuracy, transparency and efficiency of the voting process; communications and shareholder participation; and the relationship between voting power and economic interest. The SEC has also pitched the idea of data tagging proxy related data in order to facilitate the communication of this information to end investors in as efficient a manner as possible.

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