On August 31, 2022, the universal proxy rules adopted late last year by the Securities and Exchange Commission (the “SEC") will become effective. As discussed in our previous client alert, the rules require proxy cards distributed by both public companies and nominating shareholders in contested director elections to include both sides’ director nominees, such that shareholders casting their vote can “mix-and-match" nominees from each of the company’s and the dissident’s slate of director nominees.
Shareholder Proposals
Division of Corporation Finance Unveils Further Details on Its Process for Responding to Shareholder Proposal No-Action Requests
On November 21, 2019, the Division of Corporation Finance (the “Division" or “Staff") of the Securities and Exchange Commission (“SEC") provided additional detail on how it will process responses to shareholder proposal no-action requests under Rule 14a-8. As discussed in our prior posts, available here and here, in September 2019 the Division announced that, starting with the 2019-2020 shareholder proposal season, it may respond orally instead of in writing to some no-action requests, and in some cases its response may indicate that it is declining to state a view on whether a proposal satisfies the requirements of Rule 14a-8 or is properly excludable.
Developments Regarding Changes to SEC Staff’s Shareholder Proposal No-Action Responses
Several noteworthy developments have occurred following the September 6, 2019 announcement by the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (“SEC") regarding two significant procedural changes for responding to Exchange Act Rule 14a-8 no-action requests that will be applicable to no-action requests regarding shareholder proposals submitted for annual meeting to be held in 2020. That announcement indicated that the Staff may now respond orally instead of in writing to shareholder proposal no-action requests and that the Staff may now more frequently respond by declining to state a view on whether or not it concurs that a company may properly exclude a shareholder proposal under Rule 14a-8.
SEC August 21 Open Meeting To Address Issues Related To Proxy Advisory Firms
The SEC announced that it will hold an open meeting on Wednesday, August 21, 2019 at 10:00 AM eastern time. There are two matters on the agenda, available here, which, although not specifically referring to proxy advisory firms, appear to address reliance on voting recommendations issued by such firms, and the conditions such firms must satisfy to rely on an exemption from the proxy rules.
SEC To Propose Shareholder Proposal and Proxy Advisory Firm Rule Amendments
On May 22, 2019 the SEC released its Spring 2019 Regulatory Flexibility Agenda (Reg Flex Agenda), available here. The Reg Flex Agenda identifies rulemaking projects that the SEC expects to address, and classifies those projects as being either in the “Proposed & Final Rule Stages," which reflects those that the SEC expects to propose over the coming year, and “Long-Term Actions," which includes those that the SEC is more likely to address over a longer timeframe.
As Government Shutdown Continues, SEC Updates Guidance and Capital Markets Are Hindered
As we are all aware, the SEC has been closed since December 27th as a result of the ongoing partial shutdown of the federal government. While there are staff members available to respond to emergency situations involving market integrity and investor protection, including law enforcement, and the SEC continues to operate certain systems such as the EDGAR system, most activities are currently suspended. The SEC does not have staff in place to review registration statements and other filings, acceleration requests, Rule 3-13 waiver requests, and no-action letter requests, including with respect to shareholder proposal exclusions. As discussed in our previous post available here, the Staff has provided an FAQ page regarding operations during the shutdown. These FAQs were updated and supplemented recently. You should continue to visit the SEC’s website, including the FAQs, for any additional updates both during and shortly after the shutdown.
Commonsense Principles 2.0 Released
On October 18, 2018, the Commonsense Principles 2.0 (the “Principles 2.0") were released. They are an update to the Commonsense Principles of Corporate Governance (the “Previous Principles") developed in 2016 by a group of 13 business and investment leaders, including representatives of Berkshire Hathaway, BlackRock and State Street and the chief executive officers of several large public companies, available here, and discussed in a previous client alert.
SEC’s Division of Corporation Finance Issues Guidance Regarding the Voluntary Filing of Notices of Exempt Solicitation under Exchange Act Rule 14a-6(g)
As we first noted in our March 2018 blog post, available here, and further discussed in our July 2018 client alert discussing shareholder proposals submitted to public companies during the 2018 proxy season, available here, both institutional and individual investors increasingly have used Notices of Exempt Solicitations under Exchange Act Rule 14a-6(g) as a means of publicizing shareholder proposals or addressing other matters being voted on at annual meetings. Rule 14a-6(g) requires a person who owns more than $5 million of a company’s stock and who conducts an exempt solicitation of the company’s shareholders (in which the person does not seek to have proxies granted to them) to file with the Securities and Exchange Commission (the “Commission") all written materials used in the solicitation.
New Twist for Old Shareholder Proposal Tactic
Each year some public pension funds and other institutional shareholders voluntarily file with the U.S. Securities and Exchange Commission (SEC) a Notice of Exempt Solicitation under Exchange Act Rule 14a-6(g). This rule requires a person who owns more than $5 million of a company’s securities and who conducts an exempt solicitation of the company’s shareholders (in which the person does not seek to have proxies granted to them) to file with the SEC all written materials used in the solicitation. However, these funds also file these Notices, which appear on EDGAR as “PX14A6G” filings, typically to respond to a company’s statement in opposition to a shareholder proposal included in the proxy statement or to otherwise encourage (but not solicit proxies from) shareholders to vote a specific way on shareholder proposals, say on pay proposals and in “vote no” campaigns.
SEC Staff Grants No-Action Request Concurring with Exclusion of Shareholder Proposal On Virtual-Only Annual Meetings
In recent years, an increasing number of companies have opted to hold annual shareholder meetings exclusively online. These annual meetings are commonly referred to as “virtual-only annual meetings”. In a decision critical for companies that currently hold or are contemplating switching to virtual-only annual meetings, the staff of the Securities and Exchange Commission (the “SEC Staff”) recently issued a no-action letter permitting a company to exclude a shareholder proposal that objected to virtual-only annual meetings. Specifically, the shareholder proposal requested that the company’s board adopt a policy to initiate or restore in-person annual meetings. The SEC Staff concurred that the proposal could be excluded under Rule 14a-8(i)(7) on the grounds that the decision whether to hold in-person annual meetings is related to the company’s ordinary business operations because the proposal “relates to the determination of whether to hold annual meetings in person.” The SEC Staff’s decision is not yet available on the SEC’s website.