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SEC Responds to No-Action Requests Regarding Proxy Access Proposals

March 15, 2012

 

On March 7, 2012, the Staff of the Securities and Exchange Commission’s Division of Corporation Finance provided its informal view on whether certain “proxy access” proposals are required to be included in the proxy materials of ten companies pursuant to Rule 14a-8. These proposals were submitted by both individual and institutional shareholders seeking implementation of a process by which shareholders could nominate director candidates that the company would be required to include in its proxy materials.

Through its responses to the ten no-action requests, the Staff provided guidance on the contours of what companies may be permitted to exclude with regard to proxy access proposals going forward. The following is a brief summary of the four different bases for exclusion addressed by the Staff in its recent decisions.

Proxy access proposals that stray from the core concept of “proxy access” may be excluded pursuant to Rule 14a-8(c) as containing more than one proposal.

In concurring in the exclusion, pursuant to Rule 14a-8(c), of three proxy access proposals (Bank of America CorporationThe Goldman Sachs Group, Inc. and Textron) based on the US Proxy Exchange’s model proxy access proposal (availlable here), the Staff expressed reluctance to require the inclusion of proposals that stray from the core concept of “proxy access.” Each of the excluded proposals contained a provision mandating that the election of a majority of directors, who were either nominated by the board of directors or shareholders through the requested proxy access process, would not constitute a change in control. The Staff took the view that a provision relating to what constitutes a “change in control” was outside of the scope of “proxy access” and thus constituted a second proposal in violation of Rule 14a-8(c).

Proxy access proposals that refer to outside sources for the definition of key terms and phrases may be excluded pursuant to Rule 14a-8(i)(3) as inherently vague and indefinite.

In considering three other proxy access proposals (Chiquita Brands, Inc., MEMC Electronic Materials, Inc. and Sprint Nextel Corporation) also based on the US Proxy Exchange’s model proxy access proposal, the Staff continued to adhere to its practice of concurring that companies could exclude shareholder proposals that are not self-contained and self-explanatory. Each of the excluded proposals contained a provision establishing that only shareholders that “satisfy SEC Rule 14a-8(b) requirements” are eligible to submit director nominations, but did not define this standard in the proposals. In concurring that proposals could be excluded under Rule 14a-8(i)(3), these three responses are consistent with recent Staff responses concurring with the exclusion of various proposals that cite to outside sources for definitions of key terms and phrases contained therein.

Proxy access proposals that include a reference to a website are not materially false and misleading in violation of Rule 14a-8(i)(3) simply because the website is currently non-operational.

In its response to three other no-action requests (The Charles Schwab CorporationWells Fargo & Company and The Western Union Company), the Staff was unable to concur that the companies could exclude a proxy access proposal submitted by Norges Bank as being materially false and misleading in violation of Rule 14a-8(i)(3). Each company argued that Norges Bank’s proxy access proposal was materially false and misleading because it contained a reference to a non-operational website. In rejecting each company’s argument, the Staff noted that (i) the proponent had provided the company with the content it proposed to make available on the website, (ii) the company had not asserted that the proposed content was false or misleading, and (iii) the proponent represented that the website would be operational by the time the company filed its proxy materials.

Any company-adopted proxy access bylaw must contain substantially identical provisions as those in a shareholder proxy access proposal for such proposal to be excluded as having been “substantially implemented” under Rule 14a-8(i)(10).

Finally, the Staff was unable to concur that a company could exclude a proxy access proposal (KSW, Inc.) pursuant to Rule 14a-8(i)(10) as having being substantially implemented as a result of the company having already adopted a management-proposed proxy access bylaw. In taking this position, the Staff noted that the existing bylaw and the bylaw requested in the proxy access proposal contained different ownership thresholds (5% versus 2%, respectively) required for a shareholder nomination to be included in the company’s proxy materials. As such, companies should be aware that simply having a proxy access bylaw is likely insufficient to exclude a proxy access proposal under the “substantially implemented” standard of Rule 14a 8(i)(10) if the shareholder proxy access proposal contains terms that vary from those in the adopted proxy access bylaw.