On Friday, the Securities and Exchange Commission released an Announcement Regarding Rule 14a-8 No-Action Requests with important updates to its process of administering Exchange Act Rule 14a-8, the shareholder proposal rule.
The announcement states that SEC “staff will continue to actively monitor correspondence and provide informal guidance to companies and proponents as appropriate.” However, the format and content of the staff’s response to requests to exclude shareholder proposals from a company’s proxy statement may change. Most notably, the staff may, instead of issuing a written response letter, respond orally to the proponent and the company. The announcement suggests that written response letters will be reserved for instances where the staff “believes doing so would provide value, such as more broadly applicable guidance about complying with Rule 14a-8.”
As for the content of the response, the staff may respond that it “concurs, disagrees or declines to state a view.” All of these options are currently available to the staff, though declining to state a view has generally been used relatively rarely, including in situations where there is pending litigation. In this regard, the announcement states that “interested parties should not interpret [the staff’s declining to take a view] as indicating that the proposal must be included” in a company’s proxy statement.
Separately, though such arguments have generally been unsuccessful to date, the announcement reiterates the staff’s view that an analysis by a company’s board of directors “is often useful” when the company seeks to exclude a shareholder proposal from its proxy materials under the economic relevance or ordinary business prongs of Rule 14a-8, as noted in Staff Legal Bulletin Nos. 14I and 14J.
Looking ahead to no-action requests for the 2019-2020 proxy season, companies will no doubt be very focused on watching how the announcement affects the administration of Rule 14a-8 in practice, including how many written responses the SEC staff will issue, the types of shareholder proposal topics covered in those responses and whether the staff will decline to state a view with greater frequency than has been the case historically.