Topic: Corporate Governance

Solicitations using Social Media

During a webcast earlier this year, our partner Jim Moloney, who formerly worked in the SEC’s Office of Mergers & Acquisitions (“OM&A”), spoke with the current Chief of OM&A, Michele Anderson.  On that webcast, Ms. Anderson acknowledged that “social media is here to stay,” noting that the Commission was “trying to find a way to make it work.”  Following the webcast, the SEC’s Division of Corporation Finance (“Corp Fin”) posted a new round of Securities Act Compliance and Disclosure Interpretations (“C&DIs”) that approved hyperlinking to legends or required statements in satisfaction of the requirements of Rules 134, 165 and 433 in certain situations.  Under three new interpretations, Corp Fin clarified that an electronic communication containing a hyperlink to a legend (or a required statement in the Rule 134 context) would be acceptable so long as: 

Last May, Broadridge Financial Solutions, Inc., the provider of proxy services for over 90% of public companies and mutual funds in North America (“Broadridge”), decided to end its established practice of providing interim vote tallies (sometimes referred to as “preliminary voting results”) to proponents of shareholder proposals.  Following this change in practice, the Council of Institutional Investors (“CII”) sent a letter to the SEC asking the Commission to reverse Broadridge’s change in practice.  Later in July, Broadridge reviewed its decision, promising to “continue to monitor developments on th[e] issue” and noting that it is contractually obligated to follow client directions regarding release of interim vote tallies. 

Gibson Dunn successfully represented DeVry Inc. in obtaining no-action relief from the SEC staff (the “Staff”) for the exclusion of a shareholder proposal requesting that DeVry “annually report to shareholders on the expected ability of students at Company-owned institutions to repay their student loans.”  The shareholder proposal, which was submitted by the New York City Comptroller’s Office on behalf of several New York City pension funds, specified particular quantitative and other information to be included in the requested report. DeVry’s no-action request argued that DeVry could exclude the shareholder proposal under Rule 14a-8(i)(7) as relating to DeVry’s ordinary business operations because the proposal implicated decisions concerning product quality.  The no-action request identified shareholder proposal precedents relating to the quality of products or services in other industries (such as beverages and banking) and pointed out that, similar to those precedents, the proposal at issue was focused on the quality of DeVry’s educational services.  In a response letter dated September 6, 2013, the Staff concurred that the shareholder proposal could be excluded, noting that “the proposal focuses primarily on information the company should provide regarding the quality of its educational services” and that “[p]roposals that concern product quality are generally excludable under rule 14a-8(i)(7).” The Staff’s decision to grant DeVry’s no-action request is notable because the Staff had denied a no-action request earlier this year regarding an identical shareholder proposal submitted to another company.  The earlier no-action request had also asserted that the proposal was excludable under Rule 14a-8(i)(7), but its reasoning focused on the proposal’s infringement of the company’s risk assessment practices and compliance with laws rather than on how the proposal implicated the quality of the company’s products or services.  The Staff’s concurrence with DeVry’s no-action request highlights the importance of identifying the appropriate issue that may support exclusion of a shareholder proposal, exploring and addressing any precedents and clearly articulating the reasons for which the proposal implicates a particular basis for exclusion.