On July 22, 2011, the U.S. Court of Appeals for the District of Columbia vacated SEC Rule 14a-11 under the Securities Exchange Act of 1934, which would have required public companies to include shareholders' director nominees in company proxy materials in certain circumstances. On September 6, 2011, the Securities and Exchange Commission announced that it will not seek a rehearing of the decision or attempt to appeal the decision to the Supreme Court.
When the SEC adopted Rule 14a-11, it also amended Rule 14a-8, the shareholder proposal rule. While the SEC’s amendments to Rule 14a-8 were not challenged in the proxy access litigation, the SEC voluntarily stayed the effective date of those amendments at the time it stayed the effective date of Rule 14a-11. With that stay order expiring due to the finalization of the court order, the Rule 14a-8 amendments will apply to the upcoming proxy season.
Before Rule 14a-8(i)(8) was amended, companies were permitted to exclude from their proxy statements shareholder proposals relating to a nomination or an election for membership on the company’s board of directors or analogous governing body, or a procedure for such nomination or election. As amended, Rule 14a-8(i)(8) no longer provides a basis for companies to exclude from their proxy materials shareholder proposals to amend the companies’ governing documents relating to nomination procedures or disclosures related to shareholder nominations.
This rule change does not affect Rule 14a-8(i)(2), which provides a separate basis for exclusion of a shareholder proposal that violates state law. Therefore, the shareholder proposal process under Rule 14a-8 cannot be used to avoid or restrict requirements of state law. Subject to that limitation, amended Rule 14a-8(i)(8) will permit proposals relating to nomination procedures that may not reflect the ownership thresholds, holding periods or other provisions that had been contained in Rule 14a-11.
The amendments to Rule 14a-8(i)(8) also codify certain prior staff positions permitting exclusion of a proposal if it:
If you have any questions about proxy access, please contact the author of this Legal Update, , at +1 312 701 7304, or any other member of our Corporate & Securities practice.
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