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SEC Makes It Easier For Investors to Nominate Corporate Directors

August 25, 2010

August 25, 2010 (Mountain View, CA) – Horace Nash, Corporate partner and Chair of the Securities Group of Fenwick & West LLP, was recently quoted in the National Law Journal article "SEC Makes It Easier For Investors to Nominate Corporate Directors."

In a 3-2 vote, the U.S. Securities and Exchange Commission recently made changes regarding how public company shareholders can nominate directors on proxy materials, ending a 30 year debate. The vote outlines new regulations that will generally allow a shareholder or group of shareholders who have owned at least 3% of the company's voting stock for at least three years to get their own corporate director candidates listed on company-issued shareholder voting materials. The change makes it less expensive and easier for shareholders to nominate their own candidates for director slots. Additionally, the rule will also limit shareholder nominees to the greater of one nominee or 25% of the board in an effort to prevent shareholders from using the rule to change control of the company.

SEC Chairman, Mary Shapiro noted that the July 2010 enactment of the financial reform bill also known as the Dodd-Frank Wall Street Reform And Consumer Protection Act, put to rest questions about whether the SEC has the authority to issue the proxy access rule.

While the SEC rule's effective date is 60 days after publication in the Federal Register, not all public companies will be subject to the rule next year because nominating shareholders or groups must notify the company 120 days before the company mailed last year's shareholder voting materials. The SEC also deferred the effective date for "smaller reporting companies" under SEC rules for three years, and said it might make changes for smaller companies depending on how the rules impact larger companies in the interim.

The impact of the regulation "will be felt most immediately and most strongly" by the largest public companies that have numerous long-term institutional shareholders, said Horace Nash. "This is where the high-profile shareholder activist groups will be prominent," Nash continued.

Major shareholders of midsize public companies that have experienced financial or other setbacks in recent years could also use the proxy rule to get a candidate on the company board. "These companies may be less well prepared to deal with a proxy access challenge than the larger companies are," Nash said.