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Legal Update

NYSE Limits Broker Discretionary Voting on Corporate Governance Proposals

3 February 2012
Mayer Brown Legal Update

NYSE Rule 452 governs the situation where NYSE member brokers are permitted to vote shares for proxy proposals without specific instructions from their clients. In recent years, the situations where brokers have been permitted to vote without direction from their clients have been limited so that brokers are now prohibited from voting uninstructed shares for the election of directors and from voting on executive compensation proposals.

On January 25, 2012, the NYSE issued Information Memo 12-4, which further limits broker discretionary voting by prohibiting brokers from voting uninstructed shares on corporate governance proposals contained in proxy statements, such as:

  • Proposals to declassifying the board of directors
  • Proposals regarding majority voting in the election of directors
  • Proposals eliminating supermajority voting requirements
  • Proposals providing for the use of written consents
  • Proposals providing rights to call special meetings
  • Proposals implementing certain types of anti-takeover provision overrides

These changes to NYSE procedures are effective immediately.

Practical Considerations

  • Companies that will be submitting corporate governance proposals for shareholder approval may want to engage shareholders on these proposals to make sure that they understand the importance of instructing their brokers to vote on these proposals. It may be useful for such companies to specifically mention in their proxy statements that brokers will not be able to vote on these proposals unless they receive voting directions.
  • The list of corporate governance proposals included in the NYSE’s Information Memo is not comprehensive. Any company including in its proxy statement a corporate governance proposal that is not covered by the above list can consult with the NYSE staff as to whether brokers will be able to vote uninstructed shares on such proposal.
  • Because Rule 452 governs the voting rights of NYSE member brokers regardless of whether the issuer is listed on the NYSE, the changes in the application of Rule 452 affect NASDAQ-listed and other non-NYSE-listed companies, as well as NYSE-listed companies, whose shares are held by an NYSE member broker.

If you have any questions about NYSE Rule 452, please contact the author of this Legal Update, Laura D. Richman, at +1 312 701 7304, or your regular Mayer Brown lawyer.

Learn more about our Corporate & Securities practice.

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