On Wednesday, March 7, 2012, the SEC's Division of Corporate Finance responded to a series of No-Action Requests regarding issues under Exchange Act Rule 14a-8 (under which eligible shareholders are permitted to require companies to include shareholder proposals regarding proxy access procedures in company proxy materials). In these series of letters, CorpFin: (1) stated that there would be no action for omitting portions of proposals that contain something "separate and distinct" from shareholder nominations; (2) stated that there would be no action for omitting proposals that are vague and indefinite; (3) rejected the argument by certain corporations that a proposal was false and misleading; and (4) rejecting the argument that a proposal to amend the by-laws had already been substantially implemented.
We have previously discussed the SEC's views on issues of proxy access. For example, in August 2010, the SEC finalized Exchange Act Rule 14a-11, which allowed 3% shareholders (or larger) to use the company proxy statement to nominate directors. However, as discussed here, on July 22, 2011, the D.C. Circuit Court of Appeals issued an Opinion vacating the Rule, ruling that the Commission failed "to assess the economic effects of a new rule." Business Roundtable v. SEC, No. 10-1305, slip op. (D.C. Cir. Jul. 22, 2011). On September 6, 2011, the SEC announced that it was not seeking rehearing of that decision. As discussed here, at the same time, the SEC announced that Exchange Act Rule 14a-8, which had been stayed, would go into effect.
This week, the SEC responded to a series of requests addressing different issues under Rule 14a-8, in which corporations sought CorpFin's approval to omit portions of proposed materials in their proxy materials. In some cases, the Commission stated that the corporation could omit the requested materials from their proxies, while in others they did not. The SEC's responses from Wednesday can be grouped into four different categories:
No action for omitting portions of proposals that contain something "separate and distinct" from shareholder nominations. In addressing a request from Bank of America Corporation, the Commission stated:
… we note that paragraphs one through five and seven of the submission contain a proposal relating to the inclusion of shareholder nominations for director in Bank of America's proxy materials and paragraph six of the submission contains a proposal relating to events that would not be considered a change in control. We concur with your view that paragraph six contains a proposal that constitutes a separate and distinct matter from the proposal relating to the inclusion of shareholder nominations for director in Bank of America's proxy materials. Accordingly, we will not recommend enforcement action to the Commission if Bank of America omits the submission from its proxy materials in reliance on rule 14a-8( c).
No action for omitting proposals that are vague and indefinite. In responding to a request from Sprint Nextel Corporation, the SEC stated:
… the proposal provides that Sprint's proxy materials shall include the director nominees of shareholders who satisfy the "SEC Rule 14a-8(b) eligibility requirements." The proposal, however, does not describe the specific eligibility requirements. In our view, the specific eligibility requirements represent a central aspect of the proposal. While we recognize that some shareholders voting on the proposal 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. As such, neither shareholders nor Sprint would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires. Accordingly, we will not recommend enforcement action to the Commission if Sprint omits the proposal from its proxy materials in reliance on rule 14a-8(i)(3).
SEC does not accept argument that proposed proxy materials were false and misleading. Not every request for an exclusion was successful. Wells Fargo and Company inquired whether it was entitled to omit material (which the proponents planned to post on a website) as false and misleading:
… we note that the proponent has provided Wells Fargo with the information that would be included on the website, Wells Fargo has not asserted that the content to be included on the website is false or misleading, and the proponent has represented that it intends to include this information on the referenced website upon the filing by Wells Fargo of its 2012 proxy materials. As a result, we are unable to conclude that you have demonstrated that the portion of the proposal you reference for exclusion is materially false or misleading. Accordingly, we do not believe that Wells Fargo may omit this portion of the proposal from its proxy materials in reliance on rule 14a-8(i)(3).
No exclusion for proposal to amend by-laws regarding Board nominees. KSW, Inc. sought a no-action letter regarding a proposal "to amend [its] bylaws to require KSW to include in its proxy materials the name … of any person nominated for election to the board by a shareholder or a group of shareholders who beneficially owned 2% or more of KSW's outstanding common stock … ." KSW argued it had already substantially implemented such a proposal (allowing a shareholder who owns 5% or more to make such a nomination). The Commission disagreed, stating:
Given the differences between KSW's bylaw and the proposal, including the difference in ownership levels required for eligibility to include a shareholder nomination for director in KSW's proxy materials, we are unable to concur that the bylaw adopted by KSW substantially implements the proposal. Accordingly, we do not believe that KSW may omit the proposal from its proxy material in reliance on rule 14a-8(i)(10), which permits the exclusion of a proposal if a company has already substantially implemented