United States: The SEC Staff's Response To Shareholder Proposals On Proxy Access

Last Updated: April 16 2012
Article by Troy M. Calkins and Antonia K. Scholz

The SEC issued responses on March 7, 2012 to a series of no-action requests related to shareholder proposals on the right of shareholders to include director nominees in a company's proxy materials, often referred to as proxy access. These responses are the latest chapter in the long-running proxy access saga and follow the SEC's adoption in 2010 of two new rules related to proxy access.

The first of these rules, new Rule 14a-11, provided shareholders with a mandatory right of proxy access where the shareholder, or group of shareholders, owned at least 3 percent of the company's securities for at least three years. The second rule was an amendment to existing Rule 14a-8 permitting shareholders to include proposals related to proxy access in the company's proxy statement.

Almost immediately upon being adopted, Rule 14a-11 was challenged in court. The SEC then voluntarily stayed the implementation of both rules pending resolution of this challenge, which came on July 22, 2011, when the U.S. Court of Appeals for the D.C. Circuit vacated Rule 14a-11. Although the court's decision was only directed at Rule 14a-11, it raised questions as to whether the amendment to Rule 14a-8 also had been undermined. The SEC answered these questions in September 2011, when the Chairman of the SEC issued a statement indicating that, while the SEC would not appeal the court's decision about Rule 14a-11, it would proceed with implementing new Rule 14a-8.

With the expiration of the SEC's voluntary stay on the amendment to Rule 14a-8, twenty shareholder proposals related to proxy access were submitted to companies during the 2012 proxy season. These proposals varied, some were submitted as binding proposals while others were precatory or non-binding, the ownership thresholds allowing an investor to nominate a director varied between 1 and 2 percent, and the holding period ranged from one to two years. In response to these proposals, 13 companies submitted no-action letters to the SEC Staff, requesting that the SEC take no action if the companies excluded these proposals from their 2012 proxy statements. The SEC Staff has recently responded to 10 of these requests, with its responses acting as the first meaningful guidance on the practical application of the Rule 14a-8.

Of the 10 companies that received responses from the SEC Staff, six had received proposals based on a model created by the United States Proxy Exchange, which would grant proxy access to investors who own 1 percent of company shares for two years or to a group of 100 or more investors who each own $2,000 in market value of company shares for one year. In each of these six responses, the SEC Staff did not object to the company's plan to exclude the proposal. These responses were issued on two grounds:

  1. Under Rule 14a-8(c), shareholders may only submit one proposal per meeting. The SEC Staff allowed three companies to exclude proposals that included both a proposal related to proxy access and a proposal that a change in board composition would not constitute a change of control. In letters issued to Bank of America Corporation and Goldman Sachs Group, Inc., for instance, the SEC Staff took this position on the grounds that these two proposals were sufficiently distinct as to violate Rule 14a-8(c).
  2. Under Rule 14a-8(i)(3), shareholder proposals can be excluded if they are vague and indefinite. The SEC Staff allowed Chiquita Brands, Inc., MEMC Electronic Materials, Inc., and Sprint Nextel Corporation to exclude proxy access proposals because they failed to sufficiently describe the eligibility requirements of Rule 14a-8(b) for shareholders wishing to nominate directors, and were therefore vague and indefinite.

The proposals submitted to the other four companies that have since received responses from the SEC Staff were binding proposals. In the case of The Charles Schwab Corporation, Wells Fargo and Company, and The Western Union Company, shareholders who owned 1 percent or more of the company shares for one year would be permitted to nominate up to 25 percent of company directors. In the case of KSW Mechanical Services, Inc., the proposal would allow a shareholder, or group of shareholders owning at least 2 percent of company shares for one year, to nominate an unlimited number of nominees. The SEC Staff denied no-action relief to all four of these companies, rejecting the companies' arguments that the proposals could be excluded on the following grounds:

  1. Under Rule 14a-8(i)(3), shareholder proposals cannot be materially false or misleading. The three companies attempting to exclude binding 1/25 percent proposals argued that the proposals were inaccurate because they included an internet addresses that did not lead to an active webpage. The SEC Staff rejected this argument because the proponents had provided the relevant information to populate that internet page, which would be available upon filing of the proxy statement.
  2. Under Rule 14a-8(i)(10), a shareholder proposal can be excluded if it has been substantially implemented. In attempting to exclude the 2 percent/unlimited proposal, KSW Mechanical Services, Inc. argued that the proposal had been substantially implemented because the company had already adopted a bylaw allowing shareholders owning more than 5 percent of company stock to nominate a director. The SEC Staff rejected this argument due to the differing ownership levels required for eligibility.

While the SEC Staff has not yet published responses to all no-action letters related to proxy access, these early responses have begun to provide some level of guidance. This guidance will likely continue to develop during the 2013 proxy season, particularly if a number of these proposals succeed at this year's shareholder meetings, thereby leading to additional proposals next year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions