The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

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By Topic: Proxy Access

  • From Vol. 9 No.19 (May 12, 2016)

    Settlement, Prospects, Shareholder Engagement and Proxy Access Considerations for Hedge Fund Managers Pursuing Activist Strategies (Part Two of Two)

    As hedge fund managers increasingly engage in activist strategies, those strategies and opportunities are evolving. As they become more standardized, activist campaigns settle more quickly. However, managers must determine their path – the number of seats to seek on the target company’s board, whether to pursue control of the company and the degree to which they will engage with the company. Davis Polk & Wardwell recently presented an overview of the trends, tactics and prospects for shareholder activism and engagement in the U.S., the U.K. and Hong Kong. This second article in a two-part series summarizes the panelists’ insights with respect to timing and settlement of activist campaigns, prospects for activism, trends in shareholder engagement and proxy access. The first article discussed the global market for activist investing, actions companies can take when engaging with activists and disclosure obligations of activist investors, including filing obligations under the Hart-Scott-Rodino Act. For additional insight from Davis Polk practitioners, see “Davis Polk ‘Hedge Funds in the Current Environment’ Event Focuses on Establishing Registered Alternative Funds, Hedge Fund Manager M&A and SEC Examination Priorities” (Jun. 14, 2012); and “KPMG Webcast Focuses on Implications of Revised Custody Rule for Hedge Fund Managers in the Areas of Operational Independence, Delivery of Financial Statements, Surprise Examinations and Internal Control Reports” (Apr. 2, 2010).

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  • From Vol. 3 No.34 (Aug. 27, 2010)

    SEC Adopts Final Rules Expanding Access to Public Company Proxy Statements for Activist Hedge Funds and Other Major Shareholders

    On August 25, 2010, the SEC adopted, by a 3-to-2 vote, final rules granting significant shareholders mandatory access to the proxy statements of public companies.  Under new Rule 14a-11, any shareholder or group of shareholders collectively holding an investment and voting interest of at least three percent of a public company’s total voting power continuously for at least three years may include nominees for director on the company’s ballot and describe the nominees (in up to 500 words per nominee) in the company’s proxy statement.  Rule 14a-11 will be effective 60 days from publication in the Federal Register, in time for the 2011 proxy season.  On the same day, the SEC adopted new Rule 14a-8(i)(8), which requires companies to include in their proxy materials shareholder proposals to broaden proxy access, for example, by lowering ownership thresholds, reducing holding periods or increasing the number of permitted nominees.  Although Rule 14a-11 limits the ability of major shareholders to use the proxy access regime to effect a change of control of the company, the new rules likely will make it easier, faster and cheaper for activist hedge funds to engage in proxy contests and to nominate at least some of a company’s directors.  This article details: the range of companies covered by Rule 14a-11; the three percent ownership and holding period requirements; the intent of the use of a “voting power” concept in the rule; the rule’s definition of “ownership” (including discussions of the exclusion of private share classes, the definitions of “investment power” and “voting power,” and treatment under the rule of borrowed securities and securities sold short); required disclosures; the purpose and limits of the required “no change in control intent” certification; timing of required disclosures and the interaction of stated periods with advance notice bylaws; number of permitted nominees; the rule’s limited independence requirements; the process for companies wishing to exclude shareholder nominees; the narrowed “election exclusion” and what it may portend for alliances between large and small shareholders in contests for “influence”; and analogous Delaware law – and why, in the SEC’s view, such state law is insufficient to effectuate the policy goals of Rule 14a-11.

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  • From Vol. 2 No.30 (Jul. 29, 2009)

    How Will Changes to Proxy Access and Broker Voting Rules Impact Activist Hedge Fund Investors?

    Recent decisions and proposals by the SEC may influence the actions and strategies employed by activist investors.  The activist’s world has long been shaped by a number of barriers, including the broker vote and the inability for shareholders to directly access the corporate ballot, that have made many corporate elections less than democratic.  These new regulatory changes may ultimately “level the playing field” and lead to more communication between boards and activists.  In a guest article, Steven Balet, Senior Managing Director at Okapi Partners LLC, a specialized strategic proxy solicitation and investor response firm, discusses the recent decisions and proposals, and some of their potential effects on activist investment strategies.  Among other things, Balet’s discussion includes a detailed analysis of changes to the broker voting and proxy access rules.

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