On September 29, 2021, the New York Stock Exchange ("NYSE" or the "Exchange") filed with the SEC a proposal to amend Section 312.07 of the NYSE Listed Company Manual to provide that a company must calculate "votes cast" on a proposal subject to that section "in accordance with its own governing documents and any applicable state law."1
Effectively, this means that the NYSE would change its current policy of requiring companies to count abstentions as votes "against" a proposal subject to NYSE rules – even when applicable state law would consider abstentions to have no effect on the outcome of the vote. The Exchange has observed that its current policy has historically caused confusion among listed companies, and the Exchange believes that this rule change will avoid any complications among issuers and shareholders when different voting standards are applied under the NYSE rule, a company's governing documents, and/or applicable state laws. The rule change will also result in NYSE being consistent with Nasdaq in their treatment of abstentions.
Explanation of NYSE Proposal
Under Section 312.07, proposals that require shareholder approval under NYSE rules (i.e., equity compensation plans and material revisions to those plans, stock issuances to certain related parties, non-public stock issuances exceeding 20% of total voting power or common stock outstanding pre-issuance, or stock issuances leading to a change of control2) will only be considered approved by shareholders if by a majority of votes cast or a more stringent threshold.3
The NYSE has historically advised that abstentions should be treated as votes cast, thus counting as votes "against" a proposal requiring approval under NYSE rule, regardless of applicable state laws.4 Historically, NYSE's policy has resulted in confusion among companies and their shareholders, in part due to the potential inconsistency between the applicability of state corporate law and NYSE rules.
Under the proposed rule change, for management proposals triggering a shareholder vote under Section 312.07, votes "cast" would be defined as they are under a company's governing documents and applicable state law. This would be consistent with Nasdaq, which has published an FAQ on its website that clearly states: Nasdaq does not define the term "votes cast." As such, a company must calculate the "votes cast" in accordance with its governing documents and applicable state law.5
A Welcome Change…But Careful Review of Voting Standards Disclosures Still Required
The NYSE's proposed amendment would be a welcome change resulting in a consistent application of NYSE, Nasdaq rules and applicable state law, and would remove one of the complications involved in reviewing and applying voting standards for shareholder votes. That said, there are still numerous voting standards under state law that can result in different treatments of abstentions and broker non-votes. As a result, companies will need to continue to carefully review the voting standards disclosures in their proxy statements to confirm that they apply the voting standards consistent with their governing documents and applicable state law.
Within 45 days of its publication in the Federal Register,6 the SEC will either approve or disapprove the proposed rule change. Comments are due within 21 days from publication in the Federal Register.
1 The proposed rule change is available here.
2 See Sections 312.03 and 303A.08 of the Listed Company Manual.
3 Specifically, Section 312.07 states that "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."
4 As noted by the NYSE in the notice of proposed rule change, under its current approach, "a proposal is deemed approved under Section 312.07 only if the votes in favor of the proposal exceed the aggregate of the votes cast against the proposal plus abstentions" (emphasis added).
5 Nasdaq Listing Center FAQ 202. See also Nasdaq Marketplace Rule 5635(e)(4).
6 Or within up to 90 days if: (i) the SEC determines that a longer period is appropriate and publishes its reasons for this determination, or (ii) the NYSE consents to a longer review period.
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