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On Friday, the Securities and Exchange Commission released an Announcement Regarding Rule 14a-8 No-Action
Requests with important updates to its process of administering
Exchange Act Rule 14a-8, the shareholder proposal
rule.
The announcement states that SEC “staff will continue to
actively monitor correspondence and provide informal guidance to
companies and proponents as appropriate.” However, the
format and content of the staff’s response to requests to
exclude shareholder proposals from a company’s proxy
statement may change. Most notably, the staff may, instead of
issuing a written response letter, respond orally to the proponent
and the company. The announcement suggests that written
response letters will be reserved for instances where the staff
“believes doing so would provide value, such as more broadly
applicable guidance about complying with Rule
14a-8.”
As for the content of the response, the staff may respond that
it “concurs, disagrees or declines to state a
view.” All of these options are currently available to
the staff, though declining to state a view has generally been used
relatively rarely, including in situations where there is pending
litigation. In this regard, the announcement states that
“interested parties should not interpret [the staff’s
declining to take a view] as indicating that the proposal must be
included” in a company’s proxy statement.
Separately, though such arguments have generally been
unsuccessful to date, the announcement reiterates the staff’s
view that an analysis by a company’s board of directors
“is often useful” when the company seeks to exclude a
shareholder proposal from its proxy materials under the economic
relevance or ordinary business prongs of Rule 14a-8, as noted in
Staff Legal Bulletin Nos. 14I and 14J.
Looking ahead to no-action requests for the 2019-2020 proxy
season, companies will no doubt be very focused on watching how the
announcement affects the administration of Rule 14a-8 in practice,
including how many written responses the SEC staff will issue, the
types of shareholder proposal topics covered in those responses and
whether the staff will decline to state a view with greater
frequency than has been the case historically.
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.
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