Private Ordering in the Brave New World of Proxy Access

The SEC has stayed the effectiveness of its proxy access rules during the pendency of litigation challenging their validity on administrative law procedural grounds.  The stay has effectively bought public companies a year to prepare fully for the advent of SEC-mandated proxy access.  The existing SEC proxy access rules do not purport to preempt state law governed bylaws establishing reasonable conditions to the right to make nominations and reasonable qualifications for directors to be seated on a board. We don’t think it likely that, even if required to rectify procedural errors by an adverse court decision, the SEC will vary this aspect of its rules.  Companies should take advantage of the one year “grace” period and review their bylaws carefully to determine if they should be amended in light of the likely advent of proxy access. In doing so, companies should be mindful that, no matter the outcome of the SEC’s proxy access rules, traditional proxy contests and corporate governance activist pressure to reshape board composition will increasingly diminish the ability of nominating committees to be the sole arbiters of nominees for director.

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