September 1, 2022
Companies should consider whether to amend their bylaws in connection with the SEC’s new universal proxy rule, which will be effective for shareholder meetings to be held after August 31, 2022. Although new Rule 14a-19 contains certain requirements for a dissident shareholder to conduct a proxy contest, the rule also reinforces the importance of complying with the corporation’s organizational documents. In addition, most commentators expect that the universal proxy rule will lead to more proxy contests both from traditional activist hedge funds and potentially a new breed of activists who have not previously pursued board representation. It will be important, therefore, for public companies to maintain state-of-the-art advance notice bylaws to ensure an orderly nomination and election process, and to make sure that a dissident’s interests are fully disclosed to the corporation and its other stockholders.
In light of Rule 14a-19 and recently issued staff interpretive guidance, companies should review their bylaws now and consider the following:
In addition, this is an opportunity for reviewing advance notice and other bylaws generally. As noted above, many companies and advisors expect an uptick in proxy contests under the new rule.
There have also been several noteworthy legal changes that may warrant bylaw changes. Among other things, companies may want to update their bylaws to reflect recent amendments to the Delaware General Corporation Law (the “DGCL”), including:
The following examples of potential bylaw changes are merely illustrative and not intended to be used in their exact form. No legal advice is being given.
1 Example: “Except for a nomination made in accordance with Section [X] and Rule 14a-19 promulgated under the Exchange Act, this Section [Y] is the sole and exclusive manner for stockholders to include nominees for director election in the Corporation’s proxy materials.”
2 Example: The stockholder’s notice shall include “a representation as to whether or not the stockholder or beneficial owner, if any, or any of their respective affiliates, associates or others acting in concert therewith intend to solicit proxies in support of director nominees other than the Corporation’s nominees in accordance with Rule 14a-19 promulgated under the Exchange Act.”
3 Example: “Unless otherwise required by law, if any stockholder or beneficial owner, if any, or any of their respective affiliates, associates (i) provides notice pursuant to Rule 14a-19(b) promulgated under the Exchange Act or includes the information required by Rule 14a-19(b) in a preliminary or definitive proxy statement previously filed by such person (it being understood that such notice or filing shall be in addition to all notices required pursuant to this Section [X]) and (ii) subsequently fails to comply with any requirements of Rule 14a-19 promulgated under the Exchange Act or any other rules or regulations thereunder, then the Corporation shall disregard any proxies or votes solicited for such nominees and such nomination shall be disregarded.”
4 Example: “Notwithstanding the foregoing provisions of this Section [X], a stockholder shall also comply with all applicable requirements of state and federal law, including the Exchange Act, the Certificate of Incorporation and these Bylaws with respect to any nomination, proposal or other matter set forth in this Section [X].”
5 Example: “Upon request by the Corporation, if a stockholder provides notice pursuant to Rule 14a-19(b) promulgated under the Exchange Act or includes the information required by Rule 14a-19(b) in a preliminary or definitive proxy statement previously filed by such stockholder, such stockholder shall deliver to the Corporation, no later than five (5) business days prior to the applicable meeting of stockholders, reasonable evidence that it has met the requirements of Rule 14a-19(a)(3) promulgated under the Exchange Act.”
6 Example: The stockholder’s notice shall “include such person’s consent to be named in a proxy statement relating to such meeting of stockholders.”
Updated October 14, 2022