Proxy Access Bylaw Amendment or Shareholder Resolution?

December 16th, 2011
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Contributed by: Michael R. Levin, The Activist Investor
This subject may seem a little arcane. It actually concerns a critical decision that an investor wishing to achieve proxy access must make.

Very simply, should a shareholder propose a specific bylaw amendment, or a resolution?

We think a bylaw amendment makes more sense in many situations, even though all of the action so far this year has revolved around resolutions. It depends, though, on a number of company-specific factors, including the voting rule for approving bylaw amendments.

How they differ
Shareholder resolutions merely indicates investor sentiment about proxy access. A resolution on proxy access thus suggests how strongly investors want proxy access. The BoD has no obligation to provide proxy access no matter how strongly investors support the resolution.

A bylaw amendment doesn’t require the BoD to do anything. If shareholders approve a proxy access amendment, then the company must allow shareholders to have access to the proxy materials.

Resolutions also typically are easier for shareholders to approve than amendments. Typically, a resolution is “approved” if a majority of the shareholders voting at the annual meeting support it. In contrast, the vote needed to approve a bylaw amendment varies by companies, but typically requires at least a majority of the shares outstanding, and frequently requires a supermajority, anywhere from 60% to 80% of shares outstanding.

Resolutions and amendments do have some things in common, mostly pertaining to the requirements and process for submitting them to shareholder vote. The SEC regulates these as it does other shareholder proposals, so any investor that has owned $2,000 of shares for a year can propose it. The SEC also allows companies to limit the shareholder proposal to 500 words, which makes it more difficult to propose a complete bylaw amendment.

Preparing the proposal
Resolutions require somewhat less work than an amendment. A resolution merely suggests to the BoD what investors think it should do. It could read as simply as “provide proxy access”, although a shareholder should prescribe more guidance, such as how many shares an investors needs in order to have access to the proxy materials. The resolutions even lend themselves to a standard format.

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