September 9, 2015

SEC Commissioner Gallagher Sets an End Date

Last week, Commissioner Gallagher announced that he will be leaving the Commission upon the earlier of the appointment of his successor or Friday, October 2, 2015. Gallagher had previously indicated in May that he would be leaving upon the appointment of his successor, but no appointment has yet come along. His statement indicates that he is setting a firm end date given that “the need to bring greater clarity to my tenure has steadily grown.”

Staff View on Conflicting Proposals – Where Do We Go From Here?

Now that summer is over, our thoughts inevitably turn to the upcoming proxy season (or at least mine do), and the clock is ticking on whether the Staff will provide some guidance about the availability of Rule 14a-8(i)(9) as a basis to exclude a shareholder proposal based on the argument that the shareholder proposal conflicts with a management proposal. The Staff of course abandoned its efforts to address Rule 14a-8(i)(9) no-action letters at the outset of the last proxy season, following the direction of Chair White, leaving a gaping hole in the body interpretative gloss for shareholder proposals. Chair White asked the Staff to study the issue and report back to the Commission.

In the meantime, the Staff has solicited comments regarding the scope and application of Rule 14a-8(i)(9). Given that the position attracted so much attention back in January, it is somewhat surprising that the only 19 comment letters have been submitted to date. The bulk of the letters submitted were from shareholders and shareholder groups, and unfortunately it doesn’t appear that any consensus has emerged for a clear path forward.

If the Staff were to revisit the interpretation in the form of a Staff Legal Bulletin (as has been done in the past with other Rule 14a-8 interpretive issues), we would expect to see that guidance issued in October or November, so that participants in the shareholder proposal process are on notice as to what will transpire for the upcoming season. If the Commission elects to take the rulemaking route that some commenters have suggested, we may not see any rule changes emerge for years, given how long it has taken the Commission to act on the rules that were mandated by Congress over the past five years, as well as the many other collateral issues that have been raised about Rule 14a-8(i)(9) and the shareholder proposal process. Let’s hope that we hear one way or the other soon.

– Dave Lynn