The Staff of the Division of Corporation Finance has issued its initial no-action rulings on requests by public companies to exclude shareholder proxy access proposals. The proposals, in one form or another, ask (or require) the corporation to adopt measures to permit shareholders to include nominees in the company’s proxy statement. The Staff permitted exclusions in some circumstances but not others. As usual, the SEC Staff has attempted to resolve issues on the narrowest grounds possible when a controversial issue is involved. Some of the permitted reasons for exclusion are easily rectifiable, meaning these proposals will live to see another day, as proponents work around small defects cited by the Staff to permit exclusion.
Unanswered – Is Proxy Access the Best Defense to Proxy Access?
KSW sought exclusion of a shareholder proposal on the basis that it already had a by-law that allowed a shareholder who owned more than 5% of the outstanding stock to include a nomination for director in its proxy. KSW claimed it had already substantially implemented the proposal as a basis for exclusion. The shareholder proposal set the ownership threshold at 2%. The Staff disagreed, noting that the difference in ownership thresholds meant the proposal has not been substantially implemented under Rule 14a-8(i)(10).
But that is not the end of the story. KSW may be able to plausibly argue to its shareholders that its 5% threshold makes more sense than the 2% threshold proposed by the shareholder proponents. So in the end, proxy access may be a powerful defense to proxy access proposals.
Inoperative Web Site Links Are Not a Basis For Exclusion Where the Proponent Provides the Content to be Included at a Later Date
Western Union and Wells Fargo sought to exclude proxy access proposals by Norges Bank on the grounds the information was false and misleading under Rule 14a-8(i)(3). The reason asserted was Norges’ had included a hyperlink to a web site which was to contain more information on its proposal. The web site was inoperative at the time of the submission of the proposal to the issuer. Norges apparently intended to make the website operative later and provided the issuers with the content to be included. The Staff disagreed with these issuers and did not permit exclusion of the proposals, noting that the proposed information had been provided. However, neither issuer asserted that content was false and misleading.
Shareholder Proposals Which Include More Than One Proposal May be Excluded
Textron, Bank of America and Goldman Sachs sought to exclude proposals submitted by retail shareholder activists on the basis that these submissions included two proposals, instead of one, in violation of Rule 14a-8(c). The first part of these proposals sought proxy access for a shareholder nominee while another part stated that board seats filled by such nominees do not constitute a change of control. The Staff agreed with these issuers that the submission included two proposals.
Vague and Indefinite Proposals May be Excluded
Chiquita, Sprint Nextel, and MEMC argued shareholder proposals seeking proxy access may be excluded because the proposals were vague and indefinite as set forth in Rule14a-8(i)(3). Rather than set forth a specific percentage of ownership a shareholder must meet to permit inclusion of a nominee in a proxy statement, these proposals stated a company must include the nominee of any shareholder that satisfied “SEC Rule 14a-8(b) requirements.” The Staff agreed that this was vague and indefinite, noting that many shareholders may not be familiar that requirement and would not be able to make a determination based on the language of the proposal.
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