On November 21, 2019, the Division of Corporation Finance (Corp Fin) of the Securities and Exchange Commission (SEC) provided additional detail regarding how it would process responses to Rule 14a-8 no-action requests to exclude shareholder proposals from a company's upcoming proxy statement, updating Corp Fin's initial September 6, 2019, announcement ("Announcement").
In September, Corp Fin announced that, beginning in the 2019-2020 proxy season, its staff ("Staff") may respond orally to some Rule 14a-8 no-action requests rather than through the issuance of a written response letter as it traditionally has and that the Staff will inform the proponent and the company of its position, which may be to concur, disagree or to decline to state a view with respect to the company's asserted basis for exclusion of a proposal. The Announcement stated that the Staff would still issue a response letter "where it believes doing so would provide value, such as more broadly applicable guidance about complying with Rule 14a-8." However, the manner in which the Staff would provide its informal guidance as well as the amount of oral versus written responses expected was not described at the time of the Announcement and was open to speculation, which led to some concern regarding the transparency of the new disclosure regime.
In the past, when a company submitted a Rule 14a-8 no-action request, the Staff has expressed its enforcement position through the issuance of a no-action response to "assist both companies and shareholders in complying with the proxy rules." 1 After last year's proxy season, Corp Fin reexamined its process of administering Rule 14a-8 no-action requests and found that this new procedure will allow the Staff to more "efficiently and effectively provide guidance where appropriate."
In the Announcement, the Staff reiterated its position that no-action responses, whether written or oral, are the Staff's informal, non-binding views as to whether it concurs that there is a legal basis to exclude the shareholder proposal in question under Rule 14a-8 and that the parties may seek formal, binding adjudication on the merits of the issue in court.
New Corp Fin Procedures
On November 21, the Corp Fin page for Rule 14a-8 shareholder proposals was updated to link viewers to incoming Rule 14a-8 no-action requests, a description of Corp Fin's informal procedures regarding shareholder proposals and a chart tallying the Staff's written and oral responses to Rule 14a-8 no-action requests issued on or after November 21, 2019, for the 2019-2020 shareholder proposal season. Rule 14a-8 no-action requests received by Corp Fin on or after September 27, 2019, will remain posted on the incoming Rule 14a-8 no-action request page throughout the season. Responses to the no-action requests, once available, are posted to the 2019-2020 Shareholder Proposal No-Action Responses page. It does not appear that any update is made to the incoming no-action request list when the Staff posts a response on the No-Action Responses Page.
For each Staff response, the chart on the 2019-2020 Shareholder Proposal No-Action Responses page lists (i) the name of the company that submitted the no-action request, (ii) the name of the shareholder that submitted the proposal, (iii) the date the company initially submitted the no-action request, (iv) the regulatory bases asserted by the company to exclude the proposal, (v) the Staff's response, (vi) the date of the Staff's response, and (vii) whether or not the Staff responded by letter. The chart contains hyperlinks to the correspondence submitted by the company as well as a hyperlink to the Staff's response, "including any letter issued by the Staff, the company's initial submission and any subsequent correspondence." The hyperlinks are only available once the materials are posted to the SEC website, so a delay may occur between posting of the Staff's response and the hyperlinking of the related items. TheCorporateCounsel.net's blog post on November 22 provides an example of a Staff email that accompanied the Staff response (the Staff did not separately respond by letter in that instance). Note that, in cases where the Staff concurs with a company's view that there is a basis to exclude the proposal, the Staff will only concur with exclusion on one of the bases asserted by the company and not address alternative bases. Even in instances where the Staff has responded to a no-action request orally, the Staff's disposition will be recorded, providing guidance to the market, which should relieve concerns around transparency in Staff responses to no-action requests voiced after the Announcement. At the PLI Securities Regulation Institute that took place in New York City in early November, Corp Fin Deputy Director Shelley Parratt explained that the only real change in the Staff's new response regime was in the form of the response; there was no intent to otherwise change policy (which alleviates commenter concerns regarding the potential expansion of "declines to state a view"). Parratt also stated that the Staff intended to continue to respond to every submitted Rule 14a-8 no-action request and continue to be transparent about the process.
1 Division of Corporation Finance: Staff Legal Bulletin No. 14.
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