The SEC has completed its previously announced review of when a shareholder proposal may be excluded under Rule 14a-8(i)(9) because it directly conflicts with another proposal. The SEC believes the Rule was intended to prevent shareholders from using Rule 14a-8 to circumvent the proxy rules governing solicitations. In considering no-action requests under Rule 14a-8(i)(9) going forward, the SEC will focus on whether a reasonable shareholder could logically vote for both proposals. For example, where a company seeks shareholder approval of a merger, and a shareholder proposal asks shareholders to vote against the merger, the SEC agrees that the proposals directly conflict. Similarly, a shareholder proposal that asks for the separation of the company’s chairman and CEO would directly conflict with a management proposal seeking approval of a bylaw provision requiring the CEO to be the chair at all times.
In Trinity Wall Street v. Wal-Mart Stores, Inc., the U.S. Court of Appeals for the Third Circuit addressed the application of Rules 14a-8(i)(3) and 14a-8(i)(7). According to the SEC The majority opinion employed a new two-part test, concluding that “a shareholder must do more than focus its proposal on a significant policy issue; the subject matter of its proposal must ‘transcend’ the company’s ordinary business.” The SEC stated it is concerned that the new analytical approach introduced by the Third Circuit goes beyond the Commission’s prior statements and may lead to the unwarranted exclusion of shareholder proposals. As a result the Division of Corporation Finance intends to continue to apply Rule 14a-8(i)(7) as articulated by the Commission and consistent with the Division’s prior application of the exclusion when considering no-action requests that raise Rule 14a-8(i)(7) as a basis for exclusion.
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