Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...
Oct. 22 — Under 1934 Securities Exchange Act Rule 14a-8(i)(9), an issuer may omit a shareholder proposal that conflicts with a management proposal to be submitted at the same meeting if a shareholder couldn't reasonably vote for both proposals, the Securities and Exchange Commission Division of Corporation Finance said Oct. 22.
Contrary to past no-action practices in which the staff focused on the “potential for shareholder confusion and inconsistent mandates,” the division said it will now focus on whether there is a “direct conflict” between the management and shareholder proposals.
This approach is consistent with the history of the rule, which was intended to prevent shareholders from circumventing proxy rules governing solicitation, the staff said in an Oct. 22 legal bulletin.
Rule 14a-8(i)(9) allows companies to omit from their proxy materials shareholder resolutions that directly conflict with a management proposal. In January, SEC Chairman Mary Jo White asked the staff to review the rule in light of concerns regarding its “proper scope and application”. No-action relief under the exclusion has been suspended since January while the review was underway.
Going forward, in considering no-action requests that raise Rule 14a-8(i)(9) as a basis for exclusion, the staff said a shareholder proposal won't be viewed as directly conflicting with a management proposal if a reasonable shareholder, although possibly preferring one proposal over the other, could logically vote for both.
The staff acknowledged that its guidance may represent a higher bar for exclusion than under previous interpretations. However, it said this guidance more appropriately focuses on whether both proposals could prevail or whether they are, in essence, “mutually exclusive.”
Addressing a second controversial issue, the staff also said proposals that focus on a significant policy issue “transcend” a company's ordinary business operations and can't be excluded under Rule 14a-8(i)(7).
The rule allows companies to omit shareholder resolutions that involve matters relating to the company's day-to-day business operations.
The scope of Rule 14a-8(i)(7) was addressed earlier this year by the U.S. Court of Appeals for the Third Circuit in a dispute over whether Wal-Mart Stores Inc. could omit a shareholder proposal seeking more board oversight of the retailer's high-capacity gun sales. The SEC staff granted Wal-Mart no-action relief, but a federal district court said the concern didn't comply with federal securities laws when it refused to include the proposal. The Third Circuit reversed, saying the proposal was excludable under Rule 14-8(i)(7). Among other reasons, it said that even though the proposal raised a significant policy issue, it didn't transcend Wal-Mart's ordinary business operations. According to the appeals court, to transcend a corporation's ordinary business, the policy issue must be entirely separate from how the company handles its core operations.
In its guidance, the staff noted that it previously concluded that the significant policy exception to Rule 14a-8(i)(7) didn't apply to the proposal in Wal-Mart. However, it also said it was concerned that the Third Circuit's approach “goes beyond the Commission's prior statements,” and could result in the “unwarranted exclusion” of shareholder proposals.
According to the staff, “a proposal may transcend a company's ordinary business operations even if the significant policy issue relates to the `nitty-gritty of its core business.'” Going forward, it said it intends to continue to apply the rule as it has done in the past, “as articulated by the Commission and consistent with the Division’s prior application,” when considering no-action requests that raise Rule 14a-8(i)(7) as a basis for exclusion.
To contact the reporter on this story: Antoinette Gartrell in Washington at email@example.com
To contact the editor responsible for this story: Phyllis Diamond at firstname.lastname@example.org
To see the full text of the legal bulletin, visit: http://www.sec.gov/interps/legal/cfslb14h.htm.
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 email@example.com.
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 firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)