The United States Proxy Exchange has provided a “model” shareholder proposal for proxy access. The USPE is a non-profit group that bills itself as “dedicated to facilitating shareowner rights and confronting Wall Street abuse.” The model proposal is a canned document designed to be used by small investors to submit shareholder proposals, which if successful, would allow other small investors to subsequently propose director nominees to be included in the company’s proxy statement.
The model form would permit “[a]ny party of shareowners of whom one hundred or more satisfy SEC Rule 14a-8(b) eligibility requirements” to submit a director nominee for inclusion in the company’s proxy statement. Rule 14a-8 generally permits shareholders who have held, continuously for one year, $2,000 of a company’s stock to submit proposals to be included in a company’s proxy statement.
The model form of course raises governance concerns about why it would be appropriate for shareholders with such a small stake to have rights to include director nominees in a proxy statement. On top of that, there remain significant questions about how such group of shareholders could exercise their right to nominate without violating securities laws. When the SEC adopted the now invalidated Rule 14a-11, it noted that when nominating shareholders band together, any related communications would be deemed solicitations under the proxy rules (See Release No.33-9136, page 205). The SEC, in conjunction with Rule 14a-11, adopted exemptions from the proxy solicitation rules to permit shareholders to band together without violating the proxy rules. Those rules however did not expand beyond the now invalidated Rule 14a-11 (see page 215 of the foregoing Release). So how will the groups of 100 small shareholders be lawfully formed?
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