Here’s a follow-up note from Keir Gumbs of Covington about my blog yesterday illustrating how Corp Fin is not going back to “Square #1”: To clarify how to best interpret the H&R Block no-action letter – the letter was about amending an existing bylaw, not just the adoption of a bylaw:
RESOLVED: Shareholders of H&R Block, Inc (the “Company”) ask the board of directors (the “Board”) to adopt, and present for shareholder approval, revisions to its provisions allowing “Shareholder Nominations Included In The Corporation’s Proxy Materials” and associated bylaws to ensure the following:
1. The number of shareholder-nominated candidates eligible to appear in proxy materials should be one quarter of the directors then serving or two, whichever is greater.
2. Loaned securities should be counted toward the ownership threshold if the nominating shareholder or group represents that it has the legal right to recall those securities for voting purposes, will vote the securities at the annual meeting, and will hold those securities through the date of that meeting.
3. There should be no limitations on the number of shareholders that can aggregate their shares to achieve the required 3% ownership to be an “Eligible Shareholder.”
4. There should be no limitation on the renomination of shareholder nominees based on the number or percentage of votes received in any election
The letters last year were asking companies to adopt bylaws, which gave the companies the ability to argue that they’d implemented the proposal. The Corp Fin Staff picked this up in their response. Note for example the difference in language:
The proposal requests that the board amend its “proxy access” bylaw provisions in the manner specified in the proposal.
We are unable to conclude that H&R Block has met its burden of establishing that it may exclude the proposal under rule 14a-8(i)(10). Based on the information presented, we are unable to conclude that H&R Block’s proxy access bylaw compares favorably with the guidelines of the proposal. Accordingly, we do not believe that H&R Block may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(10).
The use of the word “amend” in the description of the bylaw, the use of the phrase “burden” and “Based on the information presented” tells me that:
1. The Staff viewed this as an amend the bylaw proposal (and not an adopt a bylaw proposal like those that it confronted earlier this year; and
2. The use of the burden language signals that there is an argument that they could have made that would have been successful; the staff rarely uses burden language except to signal that the company didn’t make the right arguments.
Compare that with the language used in the letters where the Staff granted relief earlier this year:
The proposal requests that the board adopt a “proxy access” bylaw with the procedures and criteria set forth in the proposal.
There appears to be some basis for your view that Quest Diagnostics may exclude the proposal under rule 14a-8(i)(10). We note your representation that the board has adopted a proxy access bylaw that addresses the proposal’s essential objective. Accordingly, we will not recommend enforcement action to the Commission if Quest Diagnostics omits the proposal from its proxy materials in reliance on rule 14a-8(i)(10).
Commentary: I’ve been saying since earlier this year that the fight over bylaws was not ended by the letters last year. This proposal – and ones like it – may survive challenge to the extent that they are asking companies to adopt changes to bylaws that have already been adopted.
This will be especially true with respect to what I call “single issue” proposals that focus on one or more specific features of a company’s proxy access bylaw. In those cases, it seems like the Staff will find it hard to say that a bylaw has implemented a proposal where the proposal identifies a provision in that bylaw that is material and asks the company to change that provision.
ISS Survey: 2017 Policy Updates
– Overboarded CEO-Chairs
– Director Tenure & Refreshment
– Pay-For-Performance & Non-TSR Financial Metrics
– Dual-Class Companies
Transcript: “Best Efforts Offerings – Nuts & Bolts”
A long while back, we posted the transcript for our DealLawyers.com webcast: “Best Efforts Offerings – Nuts & Bolts.”
– Broc Romanek