Gilbert Carrillo
Executive Editor
Loyola University Chicago School of Law, J.D. 2017

 

The Securities and Exchange Commission (SEC) is expected to propose new rules that would make it easier for shareholders to vote on board candidates nominated by investors, versus those pushed by the company’s management. What impact could this have on compliance departments?

The new regulations would promote a single ballot form (universal ballot) during contested corporate elections. The current process in contested corporate elections gives voters two sets of ballots, each featuring a rival slate of board candidates.

The proposed rules could increase shareholder choice during activist campaigns as well as increase the involvement of smaller investors in board elections. Additionally, it allows voting shareholders to pick and choose each individual member.

The rule is still in its infancy and details of the single ballot form have not been released. Nor is there any indication of whether the ballots would be optional or mandatory for companies. As it stands now, there is no regulation against companies instituting their own universal ballot form, yet they are uncommon. Companies claim that single ballot forms may confuse individual investors and could complicate the voting process.

A majority of the SEC’s five commissioners would have to approval the proposal in order to advance the rule and collect comments before implementation could take place.

Compliance

While it will be some time before the proposal could become a new regulation (assuming approval), it is not too early to think about the impact it could have on compliance departments, specifically on written policies and procedures, training and education, and auditing and monitoring.

Compliance departments will have to create clear, written polices and procedures regarding how the new voting system will work. Legislation such as this will likely be very detail oriented with numerous exceptions. Additionally, there will be different sets of rules pertaining to different types of voters. It is imperative the compliance departments create policies and procedures using language that is easy to follow.

Training and education may prove to be one of the more difficult tasks given the nature of the universal ballot. This new regulation will most likely draw in more investors’ involvement in the company and thus training and education programs will need to articulate how to use the ballots.

Auditing and monitoring will equally prove to be a challenge for compliance departments. Short of overseeing the counting of ballots how else can compliance departments ensure the company is not violating federal regulations? Moreover, activist parties may wish to have an outside third party count the ballots to ensure votes are properly apportioned. The ballot counting may also need to be addressed in the universal ballot regulation.

While it is too early to predict how compliance departments should address this potential new regulation, implementation of the rule will present its challenges.