Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...
By Yin Wilczek
July 8 — A group of 66 investors and shareholder advocates asked the SEC to interpret its “conflicting resolution” rule narrowly so as to prevent corporate “gamesmanship.”
In recent years, the Securities and Exchange Commission staff's “overly broad” interpretation of the rule has allowed companies to target shareholder proposals on proxy access and special meetings for exclusion, the investors wrote in a joint July 6 letter.
The group recommended that shareholder proposals shouldn't be seen to conflict with a management resolution if, among other factors, the shareholder proposal was submitted before a management resolution was publicly announced by the company.
The signatories include the New York State Comptroller's Office, Domini Social Investments LLC, Trillium Asset Management LLC, Walden Asset Management and US SIF.
The SEC staff is reviewing 1934 Securities Exchange Act Rule 14a-8(i)(9), which allows companies to omit from their proxy materials shareholder resolutions that directly conflict with a management proposal.
No-action relief under the provision has been suspended since January.
In recent remarks, Keith Higgins, director of the SEC's Division of Corporation Finance, said the review should be completed before the next proxy season. SEC Chairman Mary Jo White also has urged companies to give “more thoughtful treatment” to potentially conflicting shareholder resolutions.
In its correspondence, the group said it was particularly concerned by recent letters from five law firms and the Business Roundtable asking that the rule be reinstated without any amendment. Under the corporate bar's approach, companies may expand their “process of preemptive action,” the group said.
“Affording companies such broad opportunity to exclude shareholder proposals under Rule 14a-8(i)(9) would invite registrants to circumvent rules the SEC has carefully administered over many years to ensure fairness and balance between registrants and shareowners,” the group wrote. “A broad interpretation encourages gamesmanship by registrants that wish to exclude proposals, and could immerse registrants, shareholders, and the Staff in a quagmire of debate over motivation, timing, good faith, and proper interpretation of the Rule.”
The group also said that the experience with proxy access resolutions this proxy season demonstrated some companies' “clear pattern of gamesmanship.” For example, it noted that while a number of companies filed no-action requests saying they intended to publish their own proxy access proposals, they later failed to place a management resolution on the proxy. In addition, the same companies issued opposition statements to the proxy access proposals submitted by shareholders, the group said.
Separately, Domini Social Investments asked the SEC in a June 22 letter to issue a staff legal bulletin clarifying how Rule 14a-8(i)(9) should apply.
Among other recommendations, Domini said that conflicts under the provision should be limited to “legal” conflicts and that nonbinding shareholder proposals cannot conflict with binding management resolutions.
To contact the reporter on this story: Yin Wilczek in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan Tuck at email@example.com
The letters are available at http://www.sec.gov/comments/i9review/i9review.shtml.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)