Proxy Access: The Staff Weighs In on No-Action Requests
Yesterday, the Staff posted responses to a number of no-action requests relating to proxy access shareholder proposals. This sort of "batch" posting of letters related to one particular topic tends to happen with shareholder proposals that relate to difficult policy issues for the Staff, and in this inaugural year of proxy access private ordering, this has certainly been the biggest issue of the season thus far. The requests that the Staff answered deal with several different bases for exclusion, reflecting the different approaches taken by the proponents and the particular issues raised by the wording of their proposals. Here is a summary of how the Staff came out on these letters:
1. More than one proposal. In responses to Bank of America Corporation, The Goldman Sachs Group, Inc. and Textron, the Staff indicated that there appeared to be some basis that the companies could exclude the proxy access proposals under Rule 14a-8(c), which provides that a proponent may submit no more than one proposal. In particular, the Staff noted that several paragraphs of the proponents' submissions contained a proposal relating to the inclusion of shareholder director nominations in the companies' proxy materials, while one paragraph of the submissions included a proposal relating to events that would not be considered a change in control. The Staff concurred with the view that this paragraph constituted a separate and distinct matter from the proposal relating to the inclusion of shareholder nominations for director in the companies' proxy materials.
2. Vague and indefinite. In responses to Chiquita Brands, Inc., MEMC Electronic Materials, Inc. and Sprint Nextel Corporation, the Staff indicated that there appeared to be some basis for the view that the companies could exclude the proxy access proposals under Rule 14a-8(i)(3) as vague and indefinite. The Staff particularly noted that the proposals provided that the companies' proxy materials shall include the director nominees of shareholders who satisfy the "SEC Rule 14a-8(b) eligibility requirements," without describing the specific eligibility requirements. The Staff viewed the specific eligibility requirements as representing a central aspect of the proposals, and that while some shareholders voting on the proposals may be familiar with the eligibility requirements of Rule 14a-8(b), many other shareholders may not be familiar with the requirements and would not be able to determine the requirements based on the language of the proposal. Based on this ambiguity, the Staff believed that neither shareholders nor the companies would be able to determine with any reasonable certainty exactly what actions or measures the proposals required.
3. Website Reference Cannot be Omitted Under 14-8(i)(3). In responses to The Charles Schwab Corporation, Wells Fargo & Company and The Western Union Company, the Staff indicated that it was unable to concur with the view that the companies could exclude a reference to the proponent's website in the proposal under Rule 14a-8(i)(3), which permits the exclusion of a proposal or a portion of a proposal if it is materially false or misleading. The Staff particularly noted that the proponent had provided the companies with the information that would be included on the website, the companies had not asserted that the content to be included on the website was false or misleading, and the proponent represented that it intended to include the information on the referenced website when the companies filed their 2012 proxy materials. For these reasons, the Staff was unable to conclude that the companies demonstrated that the portion of the proposal was materially false or misleading and could be omitted.
4. One Proposal Not Excludable Based on a Substantially Implemented Argument. In a response to KSW, Inc., the Staff addressed a proposal seeking to amend the company's bylaws to require that the company include in its proxy materials the name, along with certain other disclosures and statements, of any person nominated for election to the board by a shareholder or a group of shareholders who beneficially owned 2% or more of the company's outstanding common stock and to allow shareholders to vote with respect to such nominee. The company had adopted a bylaw that allows a shareholder who has owned 5% or more of the company's outstanding common stock to include a nomination for director in the company's proxy materials. Given the differences between the shareholder proposal and the company's bylaw, including the difference in ownership levels required for eligibility to include a shareholder-nominated director nominee in the company's proxy statement, the Staff was unable to concur that the proposal could be omitted as substantially implement under Rule 14a-8(i)(10).
What's Next for Proxy Access?
What can we glean from these responses on proxy access proposals? Probably not much in terms of what will happen with private ordering in seasons to come. As we noted in the January-February 2012 issue of The Corporate Counsel, this current crop of proxy access shareholder proposals demonstrates the principle that it is important to focus on the specific language of the proposal itself, which often paves the way for substantive bases for exclusion that might be available even without the company having to go out and take defensive measures like adopting some sort of proxy access regime. As is usually the case with the type of exclusions that we see here on a number of these proposals, the proponents will no doubt get smarter next year and try to correct the language which led to exclusion this year, so the landscape might be quite different in 2013. Over the next few months, we will see how these proposals go over with shareholders, which of course will be the real test of whether shareholders really want proxy access in the first place.
Webcast Transcript: "Transaction Insurance as a M&A Strategic Tool"
We have posted the transcript for our recent DealLawyers.com webcast: "Transaction Insurance as a M&A Strategic Tool."
- Dave Lynn