SEC to Issue Proposals on Conflicting-Resolution Rule

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By Yin Wilczek

July 16 — The SEC staff likely will formulate several recommendations with respect to its review of the commission's conflicting-resolution exclusion, a senior official said July 16.

Instead of coming up with one way to address the issue, “there probably will be alternatives and certainly embedded in those alternatives will be how we think those changes could be effectuated,” said Jonathan Ingram, deputy chief counsel of the Securities and Exchange Commission's Division of Corporation Finance.

If the staff recommends a change in the rule, “one leading question that needs to be addressed is whether it will be through rulemaking or interpretive guidance to the extent the words of the rule change,” Ingram said.

The SEC official issued his remarks at a meeting of the SEC's Investor Advisory Committee. He said he voiced his own views and did not speak on behalf of the commission or other staff members.

Suspension of Relief 

Corp. Fin. 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 exclusion has been suspended since January while the review is ongoing.

Ingram told the meeting that the recommendations may be issued by October.

Shareholder advocates and the business community have traded barbs in their comment letters on the review.

Processing Increase

In other remarks, Ingram noted that the staff processed 316 no-action requests this season, which is a 10 percent increase compared to last year. One reason for the uptick could be the rise in requests related to proxy access proposals, he said.

Ingram also noted that in a recent meeting with stakeholders, one issue that arose was that when filing for relief under Rule 14a-8(i)(9) or (i)(10), companies often will say that they haven't yet accomplished the action upon which the request is based but are set to do so. After that, they may take a considerable time accomplishing the action. Depending on how long is taken, that may not be fair to shareholder proponents who are given little time respond under the proxy season's tight schedules, Ingram said.

Problematic 

The staff is “trying to think of ways to address what we perceive to be a problem,” Ingram added. The solution could be to grant relief to companies that is conditional on the accomplishment of the promised action. If they don't perform the action, then they won't have a no-action letter upon which to rely.

Another possibility is for companies to file for Rule 14a-8(i)(9) relief only when they already have completed the action, Ingram continued. “We’re open to suggestions on that one and we’re continuing to think about that.”

Timing also was raised at the stakeholder meeting, Ingram said. The proxy season often represents a compressed timeframe for companies and the commission wherein they have to handle shareholder proposals, no-action requests, staff review and correspondence between the company and shareholder proponents. Under these circumstances, Ingram encouraged proponents to submit their proposals, and companies to submit their no-action letters, earlier in the process.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com