USA: proxy access rules approved by SEC

At an open meeting yesterday the Securities and Exchange Commission adopted new rules designed to give shareholders greater power to nominate directors to company boards: see here (pdf). Under one of these rules (to quote from the SEC's fact sheet):

... companies will be required to include shareholder nominees for director 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.

The rule applies to all Exchange Act reporting companies, including investment companies, other than companies whose only public securities are debt securities. 'Smaller reporting companies' are subject to the rule, but it does not apply to them until after a three-year phase-in period. Foreign companies that come within the definition of 'foreign private issuer' are not currently subject to the SEC's proxy rules and would not be subject to these new rules. Foreign companies that do not qualify as foreign private issuers would be subject to the rules.

Shareholders will be eligible to have their nominee included in the proxy materials if:

• They own at least 3 percent of the total voting power of the company's securities that are entitled to be voted on the election of directors at the annual meeting. Shareholders will be able to aggregate holdings to meet this threshold.
• Shareholders will be required to have held their shares for at least three years and will be required to continue to own at least the required amount of securities through the date of the meeting at which directors are elected.
• Shareholders will not be eligible to use the rule if they are holding the securities for the purpose of changing control of the company, or to gain a number of seats on the board of directors that exceeds the number of nominees a company is required to include under new Rule 14a-11".