For today’s blog entry, Keith Bishop of Allen Matkins demonstrates why we all need to attend his workshop, “Did It Pass? Understanding Shareholder Voting Issues,” at the 19th Annual NASPP Conference in November to understand proxy voting. And you thought the electoral college was complicated…

Did It Pass? Understanding Shareholder Voting Issues
By Keith Bishop of Allen Matkins

Because we live in a democracy, we are likely to feel that we have a good understanding of voting. The basic principle is that whoever or whatever gets the most votes wins. Voting, however, is a far more complicated subject than many governance professionals may realize.

When determining whether a proposal has passed, the first step is to determine the applicable voting rule. This will be a function of state corporate law and the corporation’s charter documents. For Delaware corporations, Section 216 provides a general (there are some exceptions) default rule for matters other than the election of directors – the affirmative vote of the majority of the shares present and entitled to vote present in person or by proxy at the meeting. However, this default rule is not immutable. It can be changed by the certificate of incorporation or the bylaws. Some Delaware corporations, for example, have adopted a majority of the votes cast rule for shareholder action. Thus, it is important to review a company’s charter documents when determining whether a matter has been approved.

What’s the difference between these two rules? Under Delaware’s default rule, broker non-votes are not counted as votes against because they are not considered present and entitled to vote. Under a “votes cast” standard, abstentions and broker non-votes aren’t counted as votes against because neither is a vote against.

But wait, there’s more. In determining whether a proposal has passed, it is critical that companies ask the question “why are we seeking shareholder approval?” If shareholder approval is being sought to meet listing, tax or other requirements, additional, and even conflicting, voting requirements may come in to play.

For example, the New York Stock Exchange (Rule 303A.08) generally requires listed companies to obtain shareholder approval of equity compensation plans. The requisite standard for approval appears to be similar to a majority of the votes cast standard – “the minimum vote which will constitute shareholder approval for listing purposes is defined as approval by a majority of votes cast on a proposal in a proxy bearing on the particular matter, provided that the total vote cast on the proposal represents over 50% in interest of all securities entitled to vote on the proposal.” Rule 312.07. However, the NYSE treats abstentions as votes cast regardless of their treatment under state law. Consequently, a measure may pass as a matter of state law and yet fail to meet the NYSE’s requirement.

Determination of whether a proposal has passed is not as easy as it may seem. It requires an understanding of applicable state law as well as other applicable listing and legal requirements.

Don’t miss Keith’s workshop, “Did It Pass? Understanding Shareholder Voting Issues” at the 19th Annual NASPP Conference.

Don’t Miss the 19th Annual NASPP Conference
The 19th Annual NASPP Conference will be held from November 1-4 in San Francisco. With Dodd-Frank and Say-on-Pay dramatically impacting pay practices, you cannot afford to fall behind in this rapidly changing environment; it is critical that you–and your staff–have the best possible guidance. The NASPP Conference brings together top industry luminaries to provide the latest essential–and practical–implementation guidance that you need. This is the one Conference you can’t afford to miss. Don’t wait–the hotel is filling up fast; register today to make sure you’ll be able to attend.