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Microsoft will let shareholders nominate board members

Microsoft will let shareholders nominate board members

Bylaw change means anyone with a 3 percent stake in the company can push their own leadership candidates

A building on Microsoft's Redmond, Washington campus

A building on Microsoft's Redmond, Washington campus

Microsoft added a provision to its bylaws Friday that allowed shareholders with a significant stake in the company to directly nominate up to two candidates to its board of directors.

With the change, Microsoft will allow consortiums of up to 20 shareholders, who have owned a combined 3 percent stake in Microsoft for the past three years, to put forward nominations for up to 2 candidates or 20 percent of the board, whichever is larger. Functionally, that means a very small number of people and institutional investors have the power to nominate board members through the process.

Microsoft's bylaw change doesn't seem to have been the result of any significant behind-the-scenes intrigue. Several large companies have adopted "proxy access" proposals that allow this sort of direct nomination from shareholders over the past few years including Verizon, Western Union and Bank of America. Microsoft's terms are also largely in line with other proposals adopted by those corporations.

The change comes after investor Myra Young submitted a shareholder proposal last year that would have allowed groups of shareholders to nominate candidates for 4 of the board's 10 seats. At the time, the company opposed it and said it was "fundamentally flawed and not in the best interest of shareholders," and the proposal was voted down.

Even with the new proxy access provisions in place, it's unlikely that Microsoft will see major shake-ups in its board. Because the rules restrict nomination to coalitions of 20 investors, only those entities that already have a large stake in Microsoft will be able to use the system to make waves. Candidates submitted for voting will still need to win election by a majority of shareholders.

In addition, candidates nominated through this process who withdraw from consideration, become ineligible for election or don't receive more than 25 percent of votes in favor of their candidacy will be prevented from running again for two years. That means activist investors who want to take advantage of the system will need to get support from major shareholders in order to continue pushing director candidates.

The change comes as Microsoft faces ongoing pressure from Wall Street. In 2013, the company agreed to name ValueAct Capital President Mason Morfit to its board as part of an agreement to avoid a proxy fight with the activist investment firm. Microsoft also likely hasn't heard the last of Myra Young. Her husband James McRitchie, who has co-submitted a number of other shareholder proposals with her, said in an email that the two of them plan to file additional proxy access-related proposals to expand the power given to Microsoft shareholders.

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