Microsoft has tweaked the rules governing elections for its board, allowing large shareholders to have a greater voice in nominating candidates for the company’s governing council.

Share story

Microsoft has tweaked the rules governing elections for its board, allowing large shareholders to have a voice in nominating candidates for the company’s governing council.

Under rules that took effect on Friday, shareholders who control 3 percent of Microsoft’s outstanding stock, and have held shares in the company for at least 3 years, can nominate up to two people to stand for election to Microsoft’s board.

Should Microsoft’s board grow from its current 10-person roster, such shareholder groups will be able to nominate candidates equaling up to 20 percent of the board seats.

Previously, all nominations for director candidates came from the board itself.

So-called proxy access is a hot topic for investors, some of whom are increasingly pushing to make their voices are heard on sometimes insular corporate boards.

Microsoft’s own board was the subject of a potential proxy fight with ValueAct Capital two years ago. The San Francisco investment fund accumulated just under 1 percent of Microsoft’s shares, and was said to pressure the software giant to shift its strategy for the benefit of long-term shareholders.

The company avoided a battle by appointing G. Mason Morfit, president of ValueAct, to Microsoft’s board. The year that followed saw some longtime board members, including former chief executive Steve Ballmer, leave the board. Co-founder Bill Gates stepped down as chairman.

“We believe this proxy access framework strikes the right balance for Microsoft by ensuring that board nominees are supported by long-term shareholders representing a significant, but attainable, proportion of outstanding shares,” John Seethoff, a deputy general counsel at Microsoft, said in a blog post announcing the changes.

The scope of the new nomination process is narrower than a shareholder proposal that was voted down at Microsoft’s annual shareholders meeting last year. Under that proposal, shareholders’ groups would have been able to nominate up to 40 percent of the board.

The board and some shareholder advisory groups were against that measure, which they said would create risks of sudden and damaging shifts in company strategy amid higher board turnover.

The new rules open the doors for large shareholders to have a greater voice in board nominations, but don’t extend to mom-and-pop investors. At current prices groups of shareholders would collectively have to own about $11 billion of stock to nominate a director.