The United States Securities and Exchange Commission recently announced that it would consider proposing amendments to the disclosure requirements imposed in corporate director elections. The amendment would alter the ways in which investors nominate and elect members to the company’s board of directors in contested elections. By focusing on a universal ballot with a single voting form, the SEC hopes to make it easier for shareholders to exercise control over the company’s management. This would be a rather dramatic deviation from the current practice wherein voters receive two separate ballots representing a competing group of board candidates.
The proposed rule change will likely, however, receive backlash from Congress. This past summer, the House of Representatives passed legislation barring the SEC from making such rule changes. This was done to allow managers to focus on the company’s core operations, preventing distractions brought on by high-profile proxy contests.
Critics argue that this rule change will “boost activist campaigns” and increase the influence of smaller investors in such campaigns, which may be to the detriment of the corporation if the new rule creates confusion in the voting process. Proponents of the amendment argue that the current dual-ballot system has, in fact, created a significant amount of confusion amongst individual investors. According to a study conducted at Harvard Law School, between 2008 and 2015, 22% of all contested corporate election resulted in the “wrong candidates” being elected. Professor Scott Hirst, who developed the study, argues that such a distortion is evidence that a rule change is needed.