Marty Dunn,
Erin Jaskot,
Rebekah Toton
On November 7, 2008, the SEC’s Division of Corporation Finance published Staff Legal Bulletin No. 14D as part of its ongoing guidance regarding the shareholder proposal rule -- Securities Exchange Act of 1934 Rule 14a-8. Staff Legal Bulletin No. 14D addresses two substantive issues and three procedural matters.
- the treatment of shareholder proposals that recommend, request, or require a board of directors to unilaterally amend the company’s articles or certificate of incorporation; and
- whether a company must send a notice of defect if the company’s records indicate that the proponent has not owned the minimum amount of securities for the required period of time as set forth in Rule 14a-8(b).
- the establishment of a new e-mail address for the receipt of Rule 14a-8 no-action requests and related correspondence;
- the requirement that a proponent send copies of correspondence to the company; and
- the manner in which the company and a proponent should provide additional correspondence to the Division and to each other.
Treatment of shareholder proposals that recommend, request, or require a board to unilaterally amend the company’s articles or certificate of incorporation
The Division’s discussion of shareholder proposals that recommend, request, or require a board to unilaterally amend the company’s articles or certificate of incorporation merely restates two longstanding positions of the Division:
- Rule 14a-8(i)(1), Rule 14a-8(i)(2), or Rule 14a-8(i)(6) may provide a basis for excluding such a proposal from the company’s proxy materials if the company shows that applicable state law does not provide the board with the authority to make such an amendment unilaterally, but instead requires any such amendment to be initiated by the board and then approved by shareholders; and
- The Division 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, if the proponent revises the proposal properly within the time frame specified by the Division, none of Rule 14a-8(i)(1), Rule 14a-8(i)(2), or Rule 14a-8(i)(6) will provide a basis for excluding the proposal from the company’s proxy materials.
Staff Legal Bulletin No. 14D does not indicate why the Division is taking the opportunity to restate longstanding Division positions in this regard. It appears, however, that the Division addressed these types of proposals in Staff Legal Bulletin No. 14D to clarify a number of no‑action letters that it issued during the 2007-2008 proxy season.
During the most recent proxy season, the Division concurred with the omission of a proposal requesting that the board “adopt cumulative voting” in its no-action responses to American International Group, Inc. (dated March 28, 2008), Schering-Plough Corporation (dated March 27, 2008), Exxon Mobil Corporation (dated March 24, 2008), Bristol-Meyers Squibb Company (dated March 14, 2008), Pfizer Inc. (dated March 7, 2008), Northrop Grumman Corporation (dated February 29, 2008), Time Warner Inc. (dated February 26, 2008), PG&E Corporation (dated February 25, 2008), Citigroup Inc. (dated February 22, 2008), The Boeing Company (dated February 20, 2008), and AT&T, Inc. (dated February 19, 2008). In these no-action requests, each company argued that the proposal would require an amendment to its articles or certificate of incorporation and, in each case, the board did not have the authority to unilaterally effect such an amendment. The Division concurred in each company’s view and
did not provide the proponent with an opportunity to revise the proposal to request that the board “take the steps necessary” to effect such an amendment.
The Division’s statements in Staff Legal Bulletin No. 14D make clear that, notwithstanding its 2008 positions with regard to the “adopt cumulative voting” proposals, the Division will continue with its longstanding practice of providing proponents with an opportunity to revise proposals that improperly seek unilateral board action.
A company’s obligation to send a notice of defect if the company’s records indicate that the proponent has not owned the required amount of securities for the required period of time
The Division makes clear that, while a company’s record can prove a shareholder’s eligibility to submit a proposal, those records alone cannot prove a shareholder’s ineligibility to submit a proposal. Specifically:
- If a shareholder is listed in a company’s records as a registered holder, the company can confirm that the shareholder’s holdings satisfy the ownership eligibility requirements of Rule 14a-8(b); however,
- Because the shareholder may hold the company securities by means other than as a record holder, the company’s records cannot prove conclusively that the proponent fails to meet the ownership eligibility requirement.
Accordingly, if a company’s records indicate that the proponent does not satisfy the ownership eligibility requirement in Rule 14a-8(b) and the company intends to exclude the proposal based upon the proponent’s failure to satisfy the requirements of Rule 14a-8(b), the company is still obligated to provide the shareholder proponent with a notice of defect indicating that the shareholder must provide proof of ownership that satisfies the requirements of rule 14a-8(b).
The Division’s new e-mail address for the receipt of Rule 14a-8 no-action requests and related correspondence
The Division has established a new e-mail address -- -- for the submission of Rule 14a-8 no-action requests and related correspondence. Submissions made through this e-mail address should include the name and telephone number of the person submitting the no-action request or related correspondence. The Division indicated that it will process no-action requests and related correspondence submitted through the new e-mail address in the same manner as no-action requests and related correspondence submitted in paper.
Proponents are required to send the company copies of correspondence that they send to the Division
The Division reminded proponents of Rule 14a-8(k), which requires a proponent to provide the company with a copy of any correspondence submitted to the Division in response to the company’s no-action request.
The manner in which the company and a proponent should provide additional correspondence to the Division and to each other
In 2001, the Division stated in Section G.9 of Staff Legal Bulletin No. 14 that both the company and the shareholder proponent should promptly forward to each other copies of all correspondence provided to the Division in connection with Rule 14a-8 no-action requests. Although there is no requirement regarding the manner in which this correspondence should be provided, in Staff Legal Bulletin No. 14D the Division encourages companies and proponents to use the same means of transmitting correspondence to each other as they use to transmit materials to the Division. As an example, if a company transmits correspondence to the Division via overnight mail, the company should transmit a copy to the shareholder proponent via overnight mail as well.
Conclusion
Please contact any of the attorneys listed below if you need any assistance with regard to shareholder proposals or if you have any questions related to this Client Alert.