INTRODUCTION

Morrison & Foerster is pleased to share this 2019 - 2020 review of the responses to shareholder proposal no-action requests from the Division of Corporation Finance (the "Division") of the Securities and Exchange Commission (the "Commission"). This review discusses statements of the staff of the Division (the "Staff"), which provide background for recent Staff no-action request responses and the guidance provided by those responses.

Rule 14a-8 under the Securities Exchange Act of 1934 ("Rule 14a-8") permits a company's shareholders to present proposals for inclusion in the company's proxy materials for its next annual meeting. Rule 14a-8 includes eligibility and procedural requirements that a shareholder must satisfy and a list of 13 substantive categories that a proposal may not address. If a shareholder fails to satisfy the eligibility or procedural requirements, or if a proposal falls within one of the 13 prohibited categories, a company may exclude a shareholder's proposal from its proxy materials. When a company intends to exclude a shareholder's proposal from its proxy materials, it submits a "no-action request" to the Staff. The Staff usually responds to a no-action request, providing its decision regarding whether it concurs with the company's intention to exclude the shareholder proposal from its proxy materials.

On September 6, 2019, the Division announced that, starting with the 2019 - 2020 shareholder proposal season, the Staff may respond orally instead of in writing to some Rule 14a-8 no-action requests, and that the Staff intended to "issue a response letter where it believes doing so would provide value, such as more broadly applicable guidance about complying with Rule 14a-8." As a result of this change, the Staff's responses for the past season are reflected in its Shareholder Proposal No-Action Responses Chart posted to the Division's website, which contains hyperlinks to the corresponding letter responses issued by the Staff, where applicable. The Staff issued a letter response to approximately 10% of the no-action requests received by the Division during the past season.

The Staff's responses to no-action requests regarding shareholder proposals during the 2019 - 2020 proxy season provide significant guidance regarding the application of Rule 14a-8. The positions taken by the Staff are particularly useful with regard to the following three Rule 14a-8 substantive bases for exclusion on which companies often rely when taking the view that they may exclude a shareholder proposal from their proxy materials:

  • Rule 14a-8(i)(3) (proposal is "materially false and misleading");
  • Rule 14a-8(i)(7) (proposal relates to a company's "ordinary business" matters); and
  • Rule 14a-8(i)(10) (proposal has been "substantially implemented" by a company).

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Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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