December 11, 2002

Yesterday, on appeal, the Commission reversed the SEC staff’s mid-July position taken in a no-action letter allowing National Semiconductor Corporation to exclude a shareholder proposal regarding the board establishing a policy and practice of expensing the costs of future stock options issued to executives (2002 SEC No-Act. Lexis 651 (July 19, 2002)). The staff’s response had indicated that this proposal was excludable as “ordinary business” under Rule 14a-8(i)(7) – because it was a “choice of accounting methods.” This staff response was consistent with six other requests filed during the past year.

Below the relevant paragraph from the SEC’s appeal letter:

“After further consideration of the issues by the Division, as directed by the Commission, the Division does not concur in National Semiconductor’s view that the United Brotherhood of Carpenters Pension Fund’s proposal relates to ordinary business matters and, in the future, we will not treat shareholder proposals requesting the expensing of stock options as relating to ordinary business matters. The Division notes, however, that National Semiconductor relied in good faith on the Division’s position with respect to the proxy materials in connection with its 2002 annual meeting of shareholders, which was held on October 18, 2002.” National Semiconductor (Recon.) (avail. Dec. 6, 2002).

As a result of the overturn on appeal, over a hundred proposals recently submitted to companies on option expensing will have to be placed on the ballot for a shareholder vote. See more @ the original staff position at