SEC’s Division of Corporation Finance Provides New Guidance Regarding Shareholder Proposals
November 17, 2008
On November 7, 2008, the SEC’s Division of Corporation Finance published Staff Legal Bulletin No. 14D to provide companies and shareholders additional substantive and procedural guidance on Rule 14a-8, the no-action request process, and its views on some significant issues that commonly arise during its review of Rule 14a-8 no-action requests.
Proposals on Amending Company Charters. In the bulletin the Division advised that it may concur that Rule 14a-8(i)(1), 14a-8(i)(2), or 14a-8(i)(6) provides a basis for excluding a shareholder proposal that recommends, requests, or requires a board to unilaterally amend the company’s articles or certificate of incorporation, if the company shows that applicable state law does not grant the board the authority to unilaterally take such action. However, the Division clarified that it may permit the proponent to revise the proposal to provide that the board of directors “take the steps necessary” to amend the company’s articles or certificate of incorporation, and require that the revised proposal be included in the proxy statement. Examples of shareholder proposals in which the Staff permitted the shareholder to revise its proposal to instruct the Board of Directors to “take the steps necessary” to implement the action include proposals to (1) reduce the number of board members and (2) abolish the classified board structure.
Ownership of a Minimum Amount of Securities by Proponent. The bulletin provides that a company must send a notice of defect informing the proponent that it must provide proof of ownership that satisfies Rule 14a-8(b) if it intends to exclude the shareholder proposal on the basis that the company’s records indicate that the proponent has not owned the minimum amount of securities for the required period of time. The Staff clarified that because a shareholder can also hold the company’s securities by other means, such as through a broker or bank, the company’s records do not prove conclusively that the proponent fails to meet the ownership eligibility requirement.
Procedural Matters. The bulletin also provides shareholders and companies guidance on certain procedural matters on how parties should proceed with Rule 14a-8 no-action requests. First, the Division established a new email address, shareholderproposals@sec.gov, that companies and shareholders may use to submit Rule 14a-8 no-action requests and related correspondence. Second, the Division reiterated its prior guidance that both the company and the proponent should promptly forward to each other copies of all Rule 14a-8 correspondence provided to the SEC. Lastly, the Division encouraged companies and proponents to use the same means of transmitting information to each other as they use to transmit materials to the SEC.
http://www.sec.gov/interps/legal/cfslb14d.htm
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