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Securities Regulation and Corporate Governance > Posts > NYSE Amends Rule on Matters Requiring Shareholder Approval Under NYSE Rules
NYSE Amends Rule on Matters Requiring Shareholder Approval Under NYSE Rules

The New York Stock Exchange (“NYSE”) recently amended its rules to eliminate the quorum requirement that previously applied to proposals that require shareholder approval under NYSE rules.  This rule change became effective July 11, 2013. 

NYSE Rule 312.07 establishes voting requirements that apply in situations where shareholder approval is a prerequisite to the listing of securities, such as when an equity compensation plan is proposed for shareholder approval. Prior to the amendment, the rule required such matters to be approved by the majority of votes cast and contained an additional quorum requirement stating that the total votes cast on the proposal must represent over 50% of all securities entitled to vote on the proposal.  The recent rule change eliminated the quorum provision, so the rule now simply requires approval by the majority of votes cast on a proposal.   As a result, NYSE listed companies will no longer be subject to an additional quorum requirement applicable only to specific proposals.  Quorum will now be determined only by reference to a company’s charter and bylaws and applicable state law.

In its proposed rule change, the NYSE noted that the reason for the change was that listed companies are already subject to quorum requirements under the laws of their states of incorporation and under many corporate by-laws.  Accordingly, the additional NYSE quorum requirement was viewed as unnecessary.  The NYSE also stated that requiring companies to disclose two separate quorum requirements with respect to the limited category of proposals to which the NYSE standard applied was confusing.

Notably, for purposes of the NYSE shareholder approval standard, the NYSE will continue to treat abstentions as “votes cast,” which is different from the treatment of abstentions under the laws of many states, including Delaware and New York.  Under Delaware and New York law, abstentions are not treated as “votes cast,” so they are not counted in determining the outcome of a vote.  Thus, a higher approval threshold will continue to apply under Rule 312.07 if a company has a “votes cast” standard in its charter or bylaws.  On the other hand, for companies with a voting standard that requires “approval from a majority of the shares, present in person or by proxy and entitled to vote” (the Delaware law default), the voting calculation will be the same under a company’s organizational documents and the NYSE rule.  In this case, abstentions count as votes against a proposal both for NYSE and state law purposes.

In addition, in connection with amending the rule, the NYSE added new language to the rule specifying that it applies “where any matter requires shareholder approval,” in addition to applying when shareholder approval is a prerequisite to the listing of new or additional securities.  We understand from speaking with NYSE staff on an informal basis that this language was not intended to expand the scope of matters subject to shareholder approval under the rule.  Rather, the purpose of the language is to clarify that any new matters that in the future may require shareholder approval under NYSE rules will be subject to the vote standard in Rule 312.07.

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