United States: SEC Maintains Status Quo In Shareholder Access

On November 28, 2007, the Securities andCommission (the "SEC") approved, in a split vote, an amendment to Rule 14a-8(i)(8) of the proxy rules to codify the Staff's interpretation of the rule and maintain the status quo with regard to shareholder access to a company's proxy statement with respect to director elections and nominations. The adoption of the proposal was made prior to the 2008 proxy season, according to Chairman Christopher Cox, in order to avoid a potential end run around the proxy disclosure and antifraud rules.

On July 25, 2007, the SEC issued two proposals, which were discussed in an August 2007 Jones Day Commentary,¹ regarding shareholder access to a company's proxy statement with respect to director elections and nominations. The proposals were in direct response to the decision of the United States Court of Appeals for the Second Circuit in American Fed'n of State, County & Mun. Employees v. American Intern. Group, Inc,

The Second Circuit's holding called into question the SEC's existing interpretation that shareholder proposals relating to board elections were excludable.

Rule 14a-8(i)(8) currently permits a company to omit any shareholder proposal that "relates to an election for membership on the company's board of directors or analogous governing body." The revised rule allows a company to omit any shareholder proposal "[i]f the proposal relates to a nomination or an election for membership on the company's board of directors or analogous governing body or a procedure for such nomination or election." The added language, while subtle, clarifies the longstanding SEC position that a shareholder proposal related to the nomination process for directors is properly excludable.

The proposal will have little impact on current shareholder proposal procedures because most companies will continue to exclude shareholder proposals generally related to director elections. However, it is unlikely that this is the last we will hear about shareholder access. Several commentators, institutional investors, and shareholder activists have stated that the proposal is inadequate and, as a result, will likely continue to advocate for greater access to the proxy statement. In addition, Chairman Cox has stated that he will reopen the shareholder access discussion in 2008 with the objective of doing something other than maintaining the so-called "status quo."

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