2012 was the first year that shareholders could take advantage of SEC rules that allow shareholders to submit proxy access proposals to adopt proxy access provisions in a company’s bylaws. Prior to September 2011, Rule 14a-8(i)(8) allowed a company to exclude a shareholder proposal that related to the company’s director election/nomination procedures. The SEC proposed a mandatory proxy access rule that would have allowed long-term 3% holders to include director nominees in the company’s proxy, but the rule was vacated by the D.C. Circuit Court in July 2011. Only new Rule 14a-8(i)(8) survived, which means shareholders that want proxy access must first gain support for bylaws amendments that would allow such access.
This company-by-company approach to proxy access has some commentators predicting that a market standard will develop over time for what is a reasonable standard for proxy access, including what percentage of shares must a shareholder own (and for how long) before being able to include director nominees in the company’s proxy materials.
In March 2012, the SEC issued several no-action letters resolving requests to exclude proxy access proposals on technical grounds. The SEC has since clarified in Staff Legal Bulletin 14G when shareholder proposals, including proxy access proposals, may be excluded on technical grounds. Presumably, shareholders seeking proxy access will use successful proposals from 2012, along with this recent SEC guidance, to draft proposals for 2013 that are less likely to be excluded for technical reasons and less likely to be rejected by shareholders for substantive reasons.
Companies faced with proxy access proposals in 2013 that might pass can still exclude such proposals under Rule 14a-8(i)(9) if the company submits its own conflicting proxy access proposal at the same meeting. This strategy allows the company to control key elements of the proposal, including the ownership threshold required to be able to submit nominees, eligibility requirements for proxy access nominees, and director qualifications in general. Companies with active shareholder bases should consider what a company-sponsored proposal would look like before receiving a shareholder-sponsored proposal.