SEC Grants Whole Foods No-Action Relief to Exclude Proxy Access Proposal

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By Michael Greene

Dec. 4 — The SEC announced Dec. 1 that it will not recommend enforcement action if Whole Foods Market Inc. excludes a proxy access proposal because the company's board intends to seek shareholder approval of its own proposal.

Activist James McRitchie had asked the company to allow any shareholder or group of shareholders that collectively owned at least 3 percent of the company’s shares continuously for three years to nominate candidates onto the company’s ballot, for up to 20 percentof the board. Whole Foods submitted a no-action letter to the Securities and Exchange Commission Oct. 23, arguing that the proposal directly conflicted with one that its board intends to submit during the company's 2015 annual meeting.

The no-action relief comes at time when some experts expect an increase shareholder proposals regarding proxy access for the upcoming proxy season.

‘Inconsistent and Ambiguous Results.'

Whole Foods's proposal would permit any shareholder (but not a group of shareholders) owning 9 percent or more of the company's stock for five years to make proxy access nominations.

Whole Foods claimed that inclusion of both proposals would create the potential for inconsistent and ambiguous results.

Rule 14a-8 permits eligible shareholders to require companies to include shareholder proposals regarding proxy access procedures in company proxy materials. In some circumstances, the company is permitted to exclude a shareholder proposal, but only after submitting its reasons to the SEC.

In awarding no-action relief, the SEC Division of Corporation Finance found some basis for Whole Foods's view and accordingly announced that it “will not recommend enforcement action to the Commission if Whole Foods Market omits the proposal from its proxy material in reliance on rule 14a-8(i)(9).”

Emergence of Proxy Access

New York City Comptroller Scott Stringer, on behalf of the $160 billion New York City Pension Funds, said Nov. 6 that he submitted proxy access proposals to 75 companies requesting bylaws to give shareholders who meet the threshold of owning 3 percent of the company for three or more years the right to list their director candidates on the company's ballot (12 CARE 1576, 11/21/14).

Commenters have cited this initiative as a catalyst for an expected increase in the number of proxy access proposals for the upcoming proxy season.

Recently, the CFA has asked the SEC to revisit its struck-down proxy access rule (12 CARE 1544, 11/21/14).

During the ABA Business Law Section fall meeting Patrick McGurn, Institutional Shareholder Services, Inc. executive director and special counsel, noted that a lot of investors would like to see lower ownership requirements than were prescribed under the SEC's defunct rule. He also warned of the possibility that directors could lose credibility with shareholders by proposing water-downed access proposals and then seeking to have shareholder proposals removed from the ballot.

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The no-action letter is available at