At an open meeting on July 25, 2007, the Securities and Exchange Commission (SEC) approved two releases proposing alternative amendments to Exchange Act Rule 14a-8, which governs the ability of companies to exclude shareholder proposals from company proxy materials. One proposal (the "long release") would amend Rule 14a-8 to enable shareholders to include director nomination bylaw proposals in the company proxy materials, subject to the following conditions:
- the proposed bylaw change would be binding on the company if approved (i.e., precatory proposals would not qualify);
- the shareholder proponent has held more than 5% of the company’s securities for at least one year; and
- the shareholder proponent has filed a Schedule 13G disclosing all required information.
This proposal would not dictate or limit the content of the bylaw provisions proposed by the shareholder. The long release would also amend the proxy rules to remove obstacles to electronic shareholder communications and promote the use of electronic shareholder forums.
The other proposal (the "short release") would have the SEC ratify the Staff’s existing interpretation of Rule 14a-8 under which a company may exclude from its proxy statement shareholder proposals relating to the election of directors. The Staff’s existing interpretation was called into question in September 2006 when the U.S. Court of Appeals for the Second Circuit invalidated the Staff’s interpretation of Rule 14a-8. The amendments proposed in the short release would address the issues raised by the Second Circuit and resurrect the Staff’s interpretation.
The SEC last proposed shareholder access rules in late 2003, but those proposals never passed the comment stage. Based on comments at the open meeting and the 3-to-2 votes supporting each of the proposals, it appears that SEC Commissioners remain deeply divided on whether to fundamentally alter shareholder access to the proxy process or to reaffirm the Staff’s current position allowing the exclusion of shareholder proposals regarding director nomination bylaw provisions. Nevertheless, Chairman Cox stated at the open meeting that it was his intention to have "a clear, unambiguous rule in place in time for the next proxy season."
The opening remarks of Chairman Cox and Senior Special Counsel Lillian Brown regarding these proposals are here and here. The full text of the SEC proposing releases should be available within the next few weeks.
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