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Companies should consider whether to amend their bylaws in connection with the SEC’s new universal proxy rule, which will be effective for shareholder meetings to be held after August 31, 2022. Although new Rule 14a-19 contains certain requirements for a dissident shareholder to conduct a proxy contest, the rule also reinforces the importance of complying with the corporation’s organizational documents. In addition, most commentators expect that the universal proxy rule will lead to more proxy contests both from traditional activist hedge funds and potentially a new breed of activists who have not previously pursued board representation. It will be important, therefore, for public companies to maintain state-of-the-art advance notice bylaws to ensure an orderly nomination and election process, and to make sure that a dissident’s interests are fully disclosed to the corporation and its other stockholders.
In light of Rule 14a-19 and recently issued staff interpretive guidance, companies should review their bylaws now and consider the following:
In addition, this is an opportunity for reviewing advance notice and other bylaws generally. As noted above, many companies and advisors expect an uptick in proxy contests under the new rule.
There have also been several noteworthy legal changes that may warrant bylaw changes. Among other things, companies may want to update their bylaws to reflect recent amendments to the Delaware General Corporation Law (the “DGCL”), including:
The following examples of potential bylaw changes are merely illustrative and not intended to be used in their exact form. No legal advice is being given.
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