Investor Advocates Call for Narrow Reading of SEC Conflicting-Resolution Rule

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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.

Under Review 

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.

Law Firms, Industry Letters 

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.”

Proxy Access Resolutions 

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

To contact the editor responsible for this story: Ryan Tuck at

The letters are available at

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