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July 27 — H&R Block Inc. shareholders will get to vote on a shareholder resolution calling on the company to amend its proxy access bylaws ( H&R Block Inc., SEC No-Action Letter, 7/21/16).
The Securities and Exchange Commission Division of Corporation Finance, in a July 21 letter, concluded that the company couldn't omit the resolution from its proxy materials. This means that shareholders will get to weigh in on the resolution at the company's Sept. 8 annual meeting, unless H&R Block obtains a federal court's permission to exclude the item.
The SEC staff didn't agree with the company that the proposal could be excluded under the 1934 Securities Exchange Act's “substantially implemented” exemption—Rule 14a-8(i)(10).
Proxy access is a mechanism that facilitates stockholders' nomination of corporate directors. The SEC has granted no-action relief on scores of proxy access shareholder proposals, mostly based on the "substantially implemented" provision (89 CARE, 5/9/16). The difference this time appears to center on the fact that H&R Block had existing proxy access bylaws in place when the shareholder proponents—James McRitchie and Myra Young—submitted their resolution.
It's a “breakthrough,” McRitchie told Bloomberg BNA July 27.
In his correspondence with the SEC, McRitchie said the staff previously granted no-action relief in cases where the proposal was submitted before the company adopted proxy access bylaws. Here, he argued that H&R Block already had access provisions on its books. He argued that “it is not substantial implementation” if the company didn't implement any of his requested revisions.
SEC representatives and John Granda, a partner at Stinson Leonard Street LLP who represented H&R Block, didn't immediately return requests for comment.
In a recent speech, SEC Chairman Mary Jo White said that as many as 35 percent of the S&P 500 have adopted access bylaws (125 CARE, 6/29/16). The move by the SEC staff on the H&R Block resolution suggests that next proxy season, companies that adopted access bylaws this year may have a hard time excluding shareholder resolutions on the topic based on the “substantially implemented” exemption.
McRitchie and Young asked H&R Block to make four revisions to its access bylaws. The proposal sought changes in the number of access nominees, the treatment of loaned shares, the aggregation of shares and restrictions on the renomination of shareholder nominees.
The proponents' resolution is precatory. Even if it wins shareholder support, it doesn't bind H&R Block's management.
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The SEC's no-action letter is available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2016/mcritchieyoung072116-14a8.pdf.
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