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Present But Not Accounted For: NYSE Amends Treatment Of Abstentions In Certain Shareholder Votes

Summary

The SEC recently approved an amendment to Section 312.07 of the NYSE Listed Company Manual which eliminates the requirement that listed companies include abstentions as “votes cast” in matters on which the NYSE requires shareholder approval.  Under the revised Section 312.07, NYSE-listed companies must now tabulate abstentions in accordance with their governing documents and applicable state law.

Background

Prior to the amendment, the NYSE typically advised listed companies that abstentions were to be considered votes cast.  Under that approach, when approval of a proposal required that the votes cast in favor of the proposal exceed the aggregate of the votes cast against, abstentions were effectively treated as “against” votes.  The NYSE, however, found that its prior treatment of abstentions caused confusion because the corporate laws of many states, including Delaware, either provide for, or allow companies to provide in their governing documents that, abstentions do not count as votes cast, meaning a proposal succeeds if the votes “for” exceed the votes cast “against.”  By requiring listed companies to calculate votes in accordance with their governing documents and applicable state law, the NYSE is seeking to eliminate confusion arising from the application of different voting standards to abstentions.  Moreover, the rule change will also result in the NYSE being consistent with Nasdaq in its treatment of abstentions.

Practical Effect

Notably, the amendment will impact shareholder votes regarding matters such as:

  • equity compensation plans and material revisions to those plans;

  • certain issuances of common stock and securities convertible into common stock to related parties;

  • certain non-public issuances of common stock and securities convertible into common stock exceeding 20% of total voting power or common stock outstanding pre-issuance; and

  • issuances leading to a change of control of the listed company.

The amended rule does not affect any votes required by state law.

As a result of the amendment and with proxy season looming, listed companies should carefully review:

  • the voting standards set forth in their governing documents;

  • the voting standards that are mandated under applicable state law; and

  • the description of the voting standards included in their proxy statements to confirm that they describe the voting standards consistent with their governing documents and applicable state law.

 

Copyright ©2022 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume XI, Number 336
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About this Author

Gary Brown Corporate Gov Lawyer Nelson Mullins Nashville Law Firm
Partner

Gary practices in the areas of securities compliance and corporate governance. Prior to joining Nelson Mullins, he served for more than six years as the chief executive officer of a Florida-based financial services company that specialized in the life insurance settlement industry. 

In more than 30 years of practice, Gary has advised a wide variety of public companies in the areas of corporate governance, securities compliance, and mergers and acquisitions. From his office in Nashville, he has been at the center of significant national transactions and events, including U.S Senate...

615.664.5330
Wes Scott Corporate Attorney Nelson Mullins Nashville Law Firm
Partner

Wes serves as primary outside counsel to public and private companies with respect to their securities offerings, SEC and FDIC reporting requirements, stock exchange listing compliance, M&A, and corporate governance and general corporate matters.  In particular, Wes focuses his practice on the financial institutions industry, including banks, bank holding companies, investment banks and other depositary institutions, the healthcare industry, including medical device, life sciences, clinical trial and healthcare IT companies, and the REIT industry, including public and private REITs,...

615-664-5304
Troy Varrasse Securities Lawyer Nelson Mullins Law Firm
Associate

Troy focuses his practice on securities, mergers and acquisitions, and corporate governance matters.

Previous Professional Experience

  • Summer associate, Nelson Mullins Riley & Scarborough LLP (2019)

  • Research assistant, Center on Negotiation and Mediation (2018–2019)

  • Relationship advisor, Franklin Mint Federal Credit Union (2014–2017)

Education

  1. Northwestern University Pritzker School of Law, JD (2020)

    • Assistant Editor, Northwestern Journal of Technology and Intellectual...

864-373-2225
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