The new universal proxy card: How boards can adapt

To keep up with the rise of shareholder activism, the Securities and Exchange Commission (SEC) adopted new universal proxy rules. Under the rules, corporations must issue a universal proxy card, which lists the candidates nominated by all parties — even if they’re nominated via proxy fight.

Though the rules were enacted in 2022, many boards are still adapting to this new boardroom normal and what it means for annual meetings. To help, this article will explain:

• What the universal proxy rules are and their effective date
• The new universal proxy card format
• How the universal proxy card works (with examples)
• Additional guidance from the SEC

What are the new SEC universal proxy rules?

The SEC universal proxy rules are requirements related to board director elections. Before the rules, boards and shareholders would submit nominees on individual proxy cards. Functionally, shareholders would have to choose one slate rather than individual nominees from each.

According to the SEC, “The amendments will allow shareholders voting by proxy to choose among director nominees in an election contest in a manner that more closely reflects the choice they could make by voting in person at a shareholder meeting.”

Under the universal proxy rules, corporations must create a universal proxy card that lists nominees from all parties side by side — among other changes to the proxy process. This empowers shareholders to vote for individual directors instead of an entire group of directors while also leveling the playing field between management and shareholders during a proxy fight.

Universal proxy rules effective date

The SEC adopted the universal proxy rules in 2021, but the effective date was January 31, 2022. Any meetings after August 31, 2022, must comply with the new requirements.

What is a universal proxy card?

A universal proxy card empowers shareholders to vote on director candidates even if they can’t attend the annual shareholder meeting. Under the new rules, the universal proxy card should list all the director nominees, whether they’re nominated by management or a shareholder.

Before the new rules, management and shareholders would issue their proxy cards, essentially pushing shareholders to choose one slate over the other. The universal proxy card allows shareholders to consider any director on the card for each board vacancy.

Universal proxy card format

The SEC rules included detailed formatting requirements for the universal proxy card. The requirements are grouped under Rule 14a-19 in the universal proxy rules and include:

• The names of all director nominees
• Director nominees grouped according to the nominating party
• The nominees’ last names should alphabetize each group
• All nominees should be presented in the same font, style, and size

Corporations should also clearly state voting rules and restrictions like:

• The maximum number of directors shareholders can vote for
• What happens if the shareholder votes for too many or too few nominees
• Parameters of shareholders must vote for the nominees as a group

Amending bylaws in the wake of universal proxy

Many corporations have bylaws that dictate the process for notifying shareholders about annual meetings and the issues they’ll be voting on. But in addition to the universal proxy card, the SEC’s universal proxy rules specify how and when corporations must provide advanced notice.

That makes universal proxy not just a shareholder issue but a governance issue as well. Boards should closely review their amendments to ensure they don’t violate the new requirements.

Some common bylaw amendments that will come out of the new rules are:

• Complying with Rule 14a-19, which details the format and protocol for creating and distributing the universal proxy card
• Enhancing advanced notice requirements so boards have adequate time to prepare for proxy fights and ultimately have greater control over the meeting process
• Requiring disclosure about nominees, shareholders, and anyone who may be collaborating with or funding shareholders

How does the universal proxy process work

The universal proxy process typically starts because of a proxy fight, also called a contested election. Should a shareholder wish to nominate a slate opposing that of management, the process works like this:

1. Shareholder notifies the corporation: The shareholder initiates the process by notifying the board about the nominees they intend to submit. The notice must arrive or be postmarked at least 60 days prior to the anniversary of the last annual meeting.
2. The corporation notifies shareholders: The corporation must then notify the shareholder of their nominees — unless they’ve already issued a proxy statement. The notice must arrive or be postmarked at least 50 days prior to the anniversary of the last annual meeting.
3. The corporation discloses alternative nominees: Management should also disclose that a shareholder has submitted an alternative slate. Boards can include their recommendation for how to vote on the alternative nominees.
4. Shareholders reference the alternative proxy statement: The board should then direct shareholders to the alternative proxy statement and the detailed information it includes on each alternative nominee.
5. The corporation explains the proxy process: The board must then explain how the voting process will work, including how the universal proxy card is formatted and other voting procedures. This includes how the company will regard the alternative nominees if the shareholder drops the proxy fight.

Examples of the new universal proxy card in action

The universal proxy rules have been effective for only a year, so many corporations have yet to face a proxy fight that requires a universal proxy card. However, the few that have are great examples of how the universal proxy card may impact annual meetings.

These are:

• AIM Immunotech: AIM Stockholder Full Value Committee, a group of activist shareholders, attempted to initiate a proxy fight using the new universal proxy rules. However, AIM argued in court that the group didn’t follow their advanced notice bylaws. AIM won their case in court, and the group was ordered to drop their contest.
• The Walt Disney Company: In early 2023, an activist investor used the universal proxy rule to nominate himself to Disney’s board of directors. He later dropped the proxy fight after Disney took strict cost-cutting measures to bolster profits.
• Apartment Investment and Management Co.: An activist group, Land & Buildings Investment Management, initiated the universal proxy to nominate two directors when three positions on the board opened up, while the company nominated three of their own candidates. One of the activists’ nominees was elected to the board.

Additional SEC guidance on its universal proxy rules

The SEC offered additional guidance on the universal proxy rules following Disney’s proxy fight. Their comments focused specifically on the voting instruction forms (VIF), which explain the mechanics of the universal proxy to shareholders.

After the Disney fight, the SEC clarified that:

• VIFs should align with proxy cards: Boards should take steps to ensure the VIF and proxy cards match each other, meaning that the VIF should explain the rules related to what’s included on the proxy card. This includes how the company will handle signed, unmarked, partially unmarked and overmarked cards.
• Shareholders can determine their own voting instructions: In the event of a proxy fight, the activist shareholder or group can define their own instructions as long as the proxy statement, proxy card and VIF include the same information.

Navigating the post-universal proxy boardroom

The universal proxy rules have likely changed the boardroom as we know it. While some shareholders have already successfully invoked universal proxy, other shareholders and corporations have been inhibited by the revised format and advance notice timeline that the rules require.

Boards should also expect the rules to continue to evolve. The SEC’s updated guidance after seeing the universal proxy card in action is proof that the rules may continue to take shape in the coming months and years.

The universal proxy rules will likely further complicate the path to the annual general meeting — complications that boards can and should get in front of. Download our checklist for proxy season 2023 to learn how to navigate new disclosure requirements and the universal proxy card.