Client Alert
SEC Staff Provides Additional Guidance on Shareholder Proposals and Exchange Act Rule 14a-8
November 17, 2008
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On November 7, 2008, the SEC's Division of Corporation Finance published Staff Legal Bulletin (SLB) No. 14D providing guidance on issues that commonly arise under Rule 14a-8 under the Securities Exchange Act of 1934 relating to the inclusion of shareholder proposals in proxy statements.1
This bulletin is the latest in a series of bulletins providing the Division of Corporation Finance staff's views on certain issues under Rule 14a-8, including:
- SLB No. 14, which explained the Rule 14a-8 no-action process and addressed matters of interest to companies and proponents;
- SLB No. 14A, which clarified the staff position on shareholder proposals related to equity compensation plans;
- SLB No. 14B, which clarified and updated some of the guidance contained in SLB No. 14; and
- SLB No. 14C, which addressed additional matters of interest to companies and proponents, and clarified and updated some of the guidance contained in SLB No. 14 and SLB No. 14B.
The key provisions of SLB No. 14D are as follows:
Exclusion of Shareholder Proposal to Amend Corporate Charter
SLB No. 14D, provides that there may be some basis for a company to exclude a shareholder proposal recommending, requesting or requiring the board of directors to amend unilaterally the company’s charter, in reliance on Rule 14a-8(i)(1), (2) or (6) if the company meets its burden of establishing that applicable state law requires the amendment to be initiated by the board and subsequently approved by shareholders. However, confirming the staff's longstanding practice, SLB No. 14D provides that if the proponent revises the proposal, within the time frame specified in the no-action response letter, to recommend, request or require the board of directors to “take the steps necessary” to amend the company’s charter, the staff does not believe that there would be a basis for the company to exclude the proposal under Rule 14a-8(i)(1), (2) or (6). SLB No. 14D provides several examples of revisions of this nature that the staff has permitted in prior no-action request responses.
New E-Mail Address for Receipt of Rule 14a-8 No-Action Requests and Related Correspondence
The SEC has established a new e-mail address at shareholderproposals@sec.gov for the receipt of no-action requests and correspondence related to Rule 14a-8. This mailbox should not be used to submit other types of no-action requests or correspondence. The sender should include his or her name and telephone number in any submission sent to this mailbox. SLB No. 14D notes that e-mail is not confidential, and others may intercept and read e-mails. The staff will process no-action requests and related correspondence received through this mailbox in the same manner as requests and correspondence submitted in paper form.
Notice to Proponent When Company Intends to Exclude Proposal Based on Ownership Eligibility Grounds
SLB No. 14D notes that because a proponent can hold a company’s securities other than as a record holder, such as in "street name" through a broker or bank, the company’s records do not necessarily prove conclusively that the proponent fails to meet the ownership eligibility requirement of Rule 14a-8(b). As a result, when a company’s records indicate that the proponent does not satisfy the ownership eligibility requirement and the company intends to exclude the proposal on that basis, the staff believes that the company should notify the proponent that the proponent must provide proof of ownership that satisfies the requirements of Rule 14a-8(b).
Required Copies of Proponent and Company Correspondence
Rule 14a-8(k) requires a proponent to provide the company with a copy of any correspondence submitted to the SEC staff in response to the company’s no-action request. SLB No. 14D states that both the company and the proponent should promptly forward to each other copies of all correspondence provided to the SEC staff in connection with the no-action request. In addition, the staff encourages companies and proponents to use the same means of transmitting correspondence to each other as they use to transmit materials to the SEC staff.
Note that while the SLBs are not rules, regulations or statements of the SEC, they provide guidance on the staff's current position on certain issues and are intended to assist in the efficient operation of the Rule 14a-8 process for both companies and shareholders.
1. Staff Legal Bulletin No. 14D (CF). A copy of the bulletin is available on the SEC's website at www.sec.gov/interps/legal/cfslb14d.htm.
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