Shareholder nominations are coming: be ready for your shareholders to use your proxy statement to propose their own director nominees.

• Author: Raymond, Douglas

Proxy access, for better or worse, is coming. The controversial right of a shareholder to require a company to include in the company's own proxy materials the shareholders' nominees for directors alongside the board's nominees is an issue that public company boards will have to address in the near future. While some of the details are still uncertain, it seems likely that we are entering a new world of proxy practice where shareholder nominees to a company's board will be an increasingly frequent part of the landscape.

Shareholders today have the right to nominate candidates for election as directors and then solicit proxies for them. However, currently they have to prepare and distribute their own proxy materials and may not piggyback onto the company's own proxy statement. This makes it a time-consuming and expensive task for a shareholder to promote director nominees in a proxy contest. And, since most shareholders are not that interested in proxy contests of any kind, a dissident suffers a marked disadvantage by being kept out of the company's official materials. Including shareholder nominees in the company's proxy statement would shift the cost of promotion from the shareholder to the company. Equally important, it would give election contests a greater imprimatur and likely lead to more victories for shareholder nominees.

Delaware's approach

While various proposals to grant this right to shareholders have been advanced over the years, the past year has seen a flurry of regulatory activity on the issue at both the state and federal level. Last August, the Delaware General Corporation Law was amended to allow (but not require) corporations to adopt bylaws granting shareholders the right to include their director nominees in the corporation's proxy materials. The amendment also allows a corporation to establish conditions to the shareholder's right of access to the proxy ballot, including minimum ownership thresholds and procedural restrictions.

Because these provisions are permissive and not mandatory, they provide Delaware corporations and their shareholders with flexibility to adapt their governance practices to their own particular circumstances. For example, a corporation could adopt bylaws granting shareholders access to the proxy ballot, but that impose conditions on a shareholder's exercise of that right. These conditions might include:

* a minimum level of stock ownership, measured by amount and/or duration of ownership;

*...