NYSE Amends Shareholder Vote Requirement

By Cydney Posner

The SEC has approved an NYSE proposal to change the NYSE voting requirement. http://www.sec.gov/rules/sro/nyse/2013/34-69970.pdf

Anyone who has worked on securities matters for a company listed on the NYSE has surely run up against the convoluted NYSE voting requirement. Prior to the amendment, Section 312.07 of the Listed Company Manual provided as follows:

Where shareholder approval is a prerequisite to the listing of any additional or new securities of a listed company, 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.

Generally, a shareholder vote is required under NYSE rules for the sale or transfer by the listed company of shares where the size of the issuance exceeds thresholds established in the rule or would result in a change of control. In addition, the rules require shareholder approval of equity compensation plans and material amendments to those plans. The listing standard required approval by a majority of votes cast on any such proposal, subject to a quorum requirement that the total vote cast on the proposal had to represent over 50% in interest of all securities entitled to vote on the proposal.

Under the new rule, the NYSE is removing the quorum requirement that the total vote cast on the proposal represent over 50% in interest of all securities entitled to vote on the proposal.

Essentially, the Exchange believes that the quorum requirement is unnecessary in light of the separate quorum requirements applicable under state laws and corporate governing documents. In addition, "requiring companies to comply with a separate NYSE quorum requirement with respect to a limited category of proposals is confusing to companies and their shareholders, as it requires companies to disclose and apply two separate quorum requirements with respect to those matters, while applying only the requirements of their certificate of incorporation or bylaws or state law for all other proposals being voted on at the meeting."

This confusion is further compounded by the different treatment of broker non-votes under Section 312.07 and state law. The NYSE interprets Section 312.07 to mean that "broker non-votes should not be counted in determining whether a majority of the shares outstanding and entitled to vote have been voted. The NYSE's treatment of broker non-votes for purposes of Section 312.07 has long been a source of confusion among listed companies and their service providers."

The new rule 312.07, which became effective immediately, provides as follows:

Where shareholder approval is a prerequisite to the listing of any additional or new securities of a listed company, or where any matter requires shareholder approval, the minimum vote which will constitute shareholder approval for such purposes is defined as approval by a majority of votes cast on a proposal in a proxy bearing on the particular matter.

An NYSE representative has confirmed orally to us that "any matter requiring shareholder approval" means any matter requiring shareholder approval under NYSE rules.

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