There seems to be some confusion about what has happened to the movement to compel public companies to place shareholder nominees on the ballot for directorships.  Let me try to sort out the state of play:

1. Federal nomination rule defeated: The SEC adopted Federal Rules to compel companies to place nominees of certain shareholders on the ballot.  The National Chamber of Commerce and the Business Roundtable sued and successfully sank this proposal; the SEC gave up.

2. Companies themselves may elect to permit shareholder nominations:  A proposal to amend SEC Rule 14a-(1)(8) to permit a company to itself adopt a bylaw controlling shareholder rights to nominate directors was not objected to and has become effective as of September 20, 2011.  This Rule permits what is known as “private ordering;” a company can permit, or not permit, shareholder nominations and can define the conditions of those nominations.

3. Effect: What that means is that shareholders as a first step can compel a company to place in its proxy statement a proposal to set the terms for shareholder nominations.  This does NOT mean that now a shareholder can make a nomination and compel proxy inclusion of that nominee; that is the very thing that the rejected SEC rule calling for Federal nomination procedures attempted to achieve.

4. What can we expect?

5. Anticipated shareholder actions:  Activist shareholders, such as pension funds or aggressive hedge funds, my offer proposals for establishing a methodology to permit future shareholder nominations.  Companies with poor performance, or already under attack on other grounds, can expect an assault of this type during the coming proxy season (2012).  Such proposals must be made prior to the company’s regular cut-off date for submission of proxy proposals by shareholders; figure four months before the anniversary of  last year’s solicitation date.   That means the November-December time frame for most calendar year-end companies.

6. Possible pre-emptive board actions?:  Boards may choose to be pro-active in one of two ways.  A Board can itself forthwith amend its bylaws to provide a board-favored methodology for permitting nominations, stealing the thunder of any possible shareholder proposal.  If a company proposes a plausible methodology, then a shareholder will have to argue that ITS proposal is better; a weaker stockholder position.   Alternately, a well-run company with a confident board may try to seize the high ground by announcing that corporate success is the result of the company’s excellent board succession processes and that the board will not recommend adoption of any shareholder proposal to institute shareholder nominations, all in hopes of scaring off or positioning any shareholder who would offer such a proposal.

7. Rating agencies:  The ISS, notable among the investor advisory services, has yet to speak as to its standards for evaluating boards that resist shareholder nomination proposals, and likely those that propound proposals which are insufficiently liberal in granting shareholder rights.

8. Nominator requirements:  Note that not every shareholder will be able to make a proposal for proxy inclusion; a shareholder must hold at lest $2,000 or 1% of the company’s voting securities  for at least a year, and must hold them at meeting time.

9.  State law important:  Since the SEC rule leaves it to the company to define the rules for shareholder nominations, if any, one must look at state law to see how to achieve an effective proposal (that is, a proposal to establish shareholder nominations which must be included in company proxy solitications, which proposal in turn MUST be included in a company proxy statement under SEC Rule 14-a).

10. Private companies: None of this affects private companies (although the Delaware corporate law specifically permits such a bylaw, for all companies that solicit proxies, and that general permission would extend theoretically to private companies; see section 112).

As with all things SEC, there is plenty more detail, and some forms (including form 8-K requirements), but the above should give a basic orientation as to what has, and has not, been adopted.