U.S. Chamber Asks SEC to Undertake Full Review of Shareholder Proposal Rule

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

Feb. 5 — In a scathing letter, the U.S. Chamber of Commerce asked the Securities and Exchange Commission to perform a thorough review of its shareholder proposal rule in the wake of the agency's decision to suspend no-action relief on the conflicting proposal exclusion.

The suspension of no-action relief under 1934 Securities Exchange Act Rule 14a-8(i)(9) has placed companies in an “untenable position,” raising questions for which “there may be no good answers,” the Chamber's Center for Capital Markets Competitiveness charged in a Feb. 4 letter to SEC Chair Mary Jo White.

“Although we are aware that you have instructed the staff to review Rule 14a-8(i)(9) and report to the Commission, we respectfully request that the Commission and the staff use this opportunity to undertake a top-to-bottom review of Rule 14a-8 in its entirety,” the letter states.

SEC spokesman John Nester declined to comment on the correspondence.

Review 

The SEC Jan. 16 announced that its staff will not process no-action relief related to the exclusion while the rule is under review. The review was prompted by investor concerns that certain companies were using the exclusion to omit from their proxy materials proxy access resolutions submitted by shareholders in lieu of more favorable ones submitted by management.

The Chamber is the second business group that said the SEC's actions have placed companies in turmoil, coming as it did in the middle of the proxy season. The Business Roundtable, in a letter to Institutional Shareholder Services Inc. and Glass Lewis & Co. LLC, said the move “created significant disruption for boards and their companies” and left in limbo some 53 no-action requests, not all of which concern proxy access.

Attorneys have suggested that there may be various options available to companies, but they must heed concerns voiced by shareholders over proxy access.

Private Ordering Hindered?

In its letter, the Chamber also suggested that the SEC action may impede the private ordering of proxy access through engagement between shareholders and individual companies. In addition, it charged that issuers now face a “layer of uncertainty” given the litigation between Wal-Mart Stores Inc. and a shareholder proponent over the shareholder proposal rule's ordinary business matters exclusion.

The shareholder proposal rule is ripe for several structural reforms, the Chamber told the SEC. It cited a rulemaking petition that it and others submitted to the commission regarding the threshold for resubmission of failed shareholder proposals.).

The Chamber's letter was signed by CCMC president and chief executive David Hirschmann.

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

The letter is available at http://op.bna.com/car.nsf/r?Open=ywik-9tfu5c.