As anticipated on November 5, 2019, the SEC issued two highly controversial rule proposals. The first is to amend Exchange Act rules to regulate proxy advisors. The second is to amend Securities Exchange Act Rule 14a-8(b) to increase the ownership threshold requirements required for shareholders to submit and re-submit proposals to be included in a company’s proxy statement. The ownership thresholds were last amended in 1998 and the resubmission rules have been in place since 1954. Together the new rules would represent significant changes to the proxy disclosure and solicitation process and shareholder rights to include matters on a company’s proxy statement. Not surprisingly, given the debate surrounding this topic, each of the SEC Commissioners issued statements on the proposed rule changes.
I am in support of both rules. This blog addresses the proposed rule changes related to shareholder proposals. Shareholder proposals, and the process for including or excluding such proposals in a company’s proxy statement, have been
In late October the SEC issued its first updated Staff Legal Bulletin on shareholder proposals in years – Staff Legal Bulletin No. 14H (“SLB 14H”). Please see my blog on SLB 14H HERE. On the same day the SEC published two new Compliance and Disclosure Interpretations (“C&DI”) related to the unbundling of matters presented for a vote to shareholders in merger and acquisition transactions. The new C&DI has in essence granted voting rights to target company shareholders, on acquiring company organizational documents, where none existed before and has in essence pre-empted state law on the issue.
Unbundling under Rule 14a-4(a)(3) in the M&A Context
Exchange Act Rule 14a-4 relates to the requirements for a proxy card general. Rule 14a-4(a) provides:
(a) The form of proxy:
(1) Shall indicate in bold-face type whether or not the proxy is solicited on behalf of the registrant’s board of directors or, if provided other than by a majority of the board
In late October the SEC issued its first updated Staff Legal Bulletin on shareholder proposals in years – Staff Legal Bulletin No. 14H (“SLB 14H”). The legal bulletin comes on the heels of the SEC’s announcement on January 16, 2015, that it would no longer respond to no-action letters seeking exclusion of shareholder proposals on the grounds that the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders and the same meeting, as further discussed herein. SLB 14H will only allow exclusion of a shareholder proposal if “a reasonable shareholder could not logically vote in favor of both proposals.” As a result of the restrictive language in SLB 14H, it is likely that the direct conflict standard will rarely be used as a basis for excluding shareholder proposals going forward. With the publication of SLB 14H, the SEC will once again entertain and review no-action requests under the “direct conflict” grounds for exclusion.