SEC Proposes Requiring Funds to Include Shareholder Nominees in Director Proxies
The SEC has announced that it will propose changes in the proxy rules that will require funds to include shareholder nominees in proxies to elect directors. A shareholder would be eligible to include such shareholder’s nominee(s) if such shareholder owns at least 1% of a fund with net assets greater than $700 Million, 3% of a fund with net assets between $75 Million and $700 Million, or 5% of a fund with assets less than $75 Million. The shareholder must have held the shares for at least a year and continue to hold the shares through the meeting. Total shareholder nominees could be limited to 25% of the total Board members. Under the announced proposal, shareholders could also include proposals to modify the nomination process. The proposal would allow the exclusion of shareholder nominees that are prohibited by state law or the charter/by-laws.
OUR TAKE: Unlike operating companies, most funds do not elect directors every year, and few fund shareholders express interest in nominating directors. However, we expect fund companies to re-consider their by-laws to avoid including shareholder nominees.