Green light for retail voting program: SEC issues no-action relief for ExxonMobil’s retail voting program

The program gives Exxon’s retail investors an option to automatically have their votes cast in line with the recommendation of the company’s board. Exxon hopes that offering a streamlined option to vote in accordance with management on an ongoing basis will increase voting participation among its retail investors, who collectively own nearly 40% of the company’s shares but only a quarter of whom vote during proxy season, and remove burdens borne by retail investors in the proxy voting process. 

Notably, this is the first time the SEC has granted no-action relief for a non-financial public company to pursue a retail voting program. A successful retail voting program could be valuable to an issuer with a large retail investor base, among other things, to increase quorum rates at shareholder meetings, strengthen support for board-recommended and management-aligned proposals, or counterbalance the influence of activist investors.

The no-action letter signals openness at the SEC to innovative approaches to facilitating retail shareholder engagement; however, it represents a fact-specific determination by SEC staff based on the particular facts and circumstances of the request. Furthermore, while the no-action letter indicates that the retail voting program described is permissible under the Exchange Act’s Rule 14a-4(d)(2) and Rule 14a-4(d)(3), it does not consider whether the program complies with other provisions of the federal proxy rules, the federal securities laws or state law. While Exxon takes the position that the program is permissible under New Jersey and Delaware state corporate law,¹ these states have not confirmed the accuracy of this position, and laws may vary in other states. Any company seeking to implement a retail voting program should consult with the SEC Staff regarding whether they can rely on the relief and also analyze applicable state law.

Exxon’s program is open to all retail shareholders on an affirmative opt-in basis; however, it is not available to registered investment advisors. Participating shareholders authorize standing voting instructions that require Exxon to vote their shares following the recommendation of the board at each annual general or special shareholder meeting. Participants can choose whether their standing instructions apply (1) to all matters, or (2) to all matters except contested director elections, or certain acquisition, merger, or divestiture transactions that require shareholder approval under state law or stock exchange rules. Shareholders that have chosen to apply standing instructions to all matters will receive an additional notification prior to any meeting involving a contested director election or an acquisition, merger, or divestiture transaction that requires shareholder approval under state law or stock exchange rule. 

Exxon will regularly remind participants that they have opted in, and shareholders remain free to override a vote cast under their instructions or opt out for future meetings. Votes cast pursuant to the program will be submitted after the company files its definitive proxy statement with the SEC, but prior to the distribution of the definitive proxy statement to shareholders. The company’s vote processing agent manages the voting process and related administrative actions, including facilitating communications between the company, shareholders, brokers, and banks. 

The no-action letter emphasizes certain key features of the proposed program:

• The program will be available to all retail investors, including registered owners and beneficial owners, at no cost and with an equal opportunity to enroll.
• Investment advisers registered under the Investment Advisers Act of 1940 voting on behalf of clients are not eligible to participate.
• Retail shareholders who have opted into the program will receive an annual reminder of their opt-in status and selection, as well as their ability to opt out.
• Participating retail shareholders will continue to receive all proxy materials filed for upcoming shareholder meetings.
• Participating retail shareholders may opt out and cancel their standing instruction for future meetings at any time, and they may override the standing instruction on any particular proposal by voting using the proxy materials received in connection with a shareholder meeting.
• The program will be fully disclosed both on the company’s website and in its proxy statements, and all relevant materials describing the program will be filed with the SEC pursuant to Rule 14a-12 under the Exchange Act of 1934, as amended (the Exchange Act).²

Whether a retail voting program would be beneficial to any particular company requires evaluation of the composition of its shareholder base, historic retail voting patterns, and other factors that could affect participation and receptivity among shareholders. It also requires careful consideration of the costs and risks associated with adopting such a program, including infrastructure to manage opt-in and opt-out processes, coordination with brokers and vote-processing agents, enhanced disclosures, participant tracking and recordkeeping, and ongoing shareholder communications.

In addition, in early October, two shareholder activist groups requested that the SEC rescind its no-action relief, arguing that the program conflicts with Rule 14a-4 and provides an unfair advantage to the company’s management. The SEC has not responded to such request, and it remains to be seen whether additional shareholder activist groups will submit additional similar requests or whether the program will be subject to any litigation.

Cynthia M. Krus | Partner | +1 202 383 0218 | Email 
Lea H. Schild | Associate | +1 202 383 0310 | Email 
Marianne McLaughlin* | Associate | +1 212 287 7196 | Email 
Steven B. Boehm | Partner | +1 202 383 0176 | Email
Kristin H. Burns | Partner | +1 212 287 7023 | Email
Dwaune L. Dupree | Partner | +1 202 383 0206 | Email
Stephani M. Hildebrandt| Partner | +1 202 383 0845 | Email
Anne G. Oberndorf | Partner | +1 202 383 0966 | Email
Sara Sabour Nasseri | Partner | +1 202 383 0806 | Email
Payam Siadatpour | Partner | +1 202 383 0278 | Email
Eric D. Simanek | Partner | +1 202 220 8412 | Email

_{*Not admitted to practice.}

__________

If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.

1 Exxon’s request letter indicates that “New Jersey and Delaware state corporate law each permit the giving of a standing voting instruction that does not expire so long as the instruction provides for such extended duration.” See NJ Rev Stat § 14A:5-19 (“No proxy shall be valid for more than 11 months, unless a longer time is expressly provided therein”); 8 Del. C. § 212(b) (proxies valid for up to three years, “unless the proxy provides for a longer period”).

2 Exxon did not request no-action relief regarding whether the program involves the “solicitation” of proxies and submitted that to the extent that communications related to the program are considered “solicitations,” the provisions of such communications to beneficial owners of Exxon’s securities would be subject to Rule 14a-2(a)(1).