November 10, 2016

Proxy Access: No-Action Letter Allows Exclusion of “Fix-It” Proposal

Here’s the intro to this blog by Cooley’s Cydney Posner regarding this no-action letter to Oshkosh (we’ll be posting memos in our “Shareholder Proposals” Practice Area):

In September, I blogged about several pending no-action requests seeking exclusion of proposals from the McRitchie/Chevedden group to revise existing proxy access bylaws on the basis that they had been “substantially implemented” under Rule 14a-8(i)(10). As I described it back then, the burning question was whether there would be any “evolution” in Corp Fin’s position in H&R Block, in which the staff refused to grant no-action relief to a proposal to amend the company’s existing proxy access bylaw — a so-called “fix-it” proposal. In particular, there were two pending no-action requests that applied different approaches in efforts to overcome the result in H&R Block (and two more similar requests have subsequently been submitted). Corp Fin has now acted on all four of these letters. One of them received a favorable response.

As you may recall, the fix-it proposal at issue in H&R Block (which also came from the prolific James McRitchie) requested that the board amend its existing proxy access bylaw provisions as specified in the proposal. The company sought to exclude the proposal on the basis that it had already been “substantially implemented” under Rule 14a-8(i)(10), contending that the staff had previously allowed exclusion of dozens of proposals as substantially implemented based on the companies’ representations that the proxy access bylaws that had been adopted addressed the proposals’ “essential objective.” (See this PubCo post.) No-action relief was granted in those cases so long as the companies’ bylaw provisions contained the same percentage and duration of ownership thresholds (3%/3 years) as in the proposal, even though the bylaws also included “certain procedural limitations or restrictions that were inconsistent with or not contemplated by the proposals.”

In the case of the fix-it proposal at issue in H&R Block, however, the Corp Fin staff refused to allow the company to exclude the proposal, responding that it was unable to conclude that the company had “met its burden of establishing that it may exclude the proposal under Rule 14a-8(i)(10).” (See this PubCo post.) As a result, companies that adopted versions of proxy access that McRitchie et al viewed as “proxy access lite” have begun to see new proposals for amendments to those proxy access bylaws. According to Agenda, fix-it proposals have now been submitted to over three dozen companies.

Keep in mind that, where the proposal related to initial adoption of proxy access, Corp Fin has continued to grant no-action relief and permit exclusion under Rule 14a-8(i)(10), even where the proponent has identified specific elements of the proposal that he views to be essential.

Filing Fee Calculations & Form S-8: Two New CDIs (& Two Revised Ones)

Yesterday, as noted in this Cooley blog, Corp Fin issued two new CDIs on Form S-8 & Rule 457 (regarding filing fee calculations) and two revised ones:

Revised CDI 126.06 of Form S-8 (also Securities Act CDI 240.16)

Revised CDI 126.42 of Form S-8 (also Securities Act CDI 240.11; 126.42 is missing from Corp Fin’s New” page)

New CDI 126.43 of Form S-8 (also Securities Act CDI 240.15)

New CDI 126.44 of Form S-8

We’ll be updating our “Form S-8 Handbook” and “SEC Filing Fees Handbook“…

Pay-for-Performance: ISS Supplements TSR With 6 New Metrics

A few days ago, ISS announced changes to its pay-for-performance methodology for companies in the US, Canada, and Europe that will become effective on February 1st. Following feedback from constituents, ISS will present relative evaluations of return on equity, return on assets, return on invested capital, revenue growth, EBITDA growth, and cash flow (from operations) growth to supplement ISS’ legacy (and continued) use of TSR as the key metric for P4P.

Pay-for-performance updates for US companies include:

– A new standardized comparison of the subject company’s CEO pay and financial performance ranking relative to its ISS-defined peer group will be added to ISS’ benchmark policy proxy research reports beginning Feb. 1, 2017. Financial performance will be measured by a weighted average of multiple financial metrics including return on equity, return on assets, return on invested capital, revenue growth, EBITDA growth, and cash flow (from operations) growth. The metrics and weightings will be based on the company’s four-digit GICS industry group, and are based on extensive back-testing over multiple years. The financial performance and pay ranking information will be displayed for all companies subject to ISS’ quantitative pay-for-performance screens. While this information will not impact the quantitative screening results during the 2017 proxy season, it may be referenced in the qualitative review and its consideration may mitigate or heighten identified pay-for-performance concerns.

– Relative Degree of Alignment (RDA) assessment will only be considered in the overall quantitative concern level when the subject company has a minimum of two years of pay and TSR data. Companies that only have one year of data will receive an N/A (not applicable) concern for their RDA test.

ISS’ peer submission window will be open starting on November 28th – and will close on December 9th…

Broc Romanek