SEC Grants Corporate Relief for Most Access Resolutions

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By Che Odom

May 6 — Staff of the Securities and Exchange Commission has sided with the overwhelming majority of companies that sought this year to keep shareholder proxy access proposals from going to a stockholder vote.

According to data from Bloomberg BNA's Corporate & Transactional editorial team, from Jan. 1 to May 6, the SEC Division of Corporation Finance acceded to 41 out of the 49 requests by companies to exclude proxy access resolutions from their proxy materials.

Proxy access proposals call on corporations to allow stockholders to nominate their own board candidates on the company's ballot.

Of the 41 no-action requests granted by the SEC staff, 36 were because the companies had “substantially implemented” the process (34 CARE, 2/22/16).

Shareholder proponents are not happy with this state of affairs. “The SEC contributed to the problem” with its interpretation of the “substantially implemented” exemption this year, shareholder activist James McRitchie told Bloomberg BNA.

Rule 14a-8(i)(10) under the 1934 Securities Exchange Act allows companies to exclude from their proxy materials shareholder proposals asking for actions that have been substantially implemented.

More than 200 companies have adopted proxy access since 2014 (82 CARE, 4/28/16). Attorneys told Bloomberg BNA that some companies adopted access mechanisms proactively to fend off potential shareholder proposals that may call for easier terms.

The most popular provisions to be adopted by companies require shareholders to hold at least 3 percent of common stock for three years to offer nominations for up to 25 percent of board seats (25 CARE, 2/8/16).

SEC Process

Stephen Giove, partner and corporate lawyer at Shearman & Sterling LLP, told Bloomberg BNA that the terms of a company's proxy access provision don't have to be identical to those sought by the shareholder proponent for the company to gain no-action relief.

However, the SEC hasn't granted relief where the difference was in the percentage ownership requirement, Giove said.

In many other cases, the SEC has allowed companies to omit proposals where the differences were in the cap on the number of shareholders who may gather to meet the ownership threshold or the percentage of the board seats for which nominations may be made, Giove said.

While companies appear to have a good chance of obtaining SEC relief for access proposals, “I do not think all of the situations that could be presented to the SEC for consideration have been so presented,” Giove said.

Proponents may modify the next wave of proposals to make it less likely that they be excluded, he added.

Serious Limitation

The most serious limitation commonly placed on shareholder access to the proxy by corporate bylaws tends to be the one limiting to 20 the number of shareholders that may aggregate to meet the ownership threshold, McRitchie said.

Very few shareholders, even when aggregated, can meet the ownership threshold of 3 percent, so such a provision really hinders access, he said.

Going forward, McRitchie said he and other proponents will seek to address this issue and other common problems, such as a 20 percent limit on the number of directors that shareholders may nominate.

To contact the reporter on this story: Che Odom in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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