WEBCAST PRESENTATION
MORE ON AVOIDING SITTING DUCK SYNDROME:
HOW TO PREPARE FOR AND RESPOND TO
RULE 14A-8 SHAREHOLDER PROPOSALS
Tuesday, February 14, 2012
SPEAKERS:
Keith E. Gottfried
Francis H. Byrd
Partner
Blank Rome LLP
Senior Vice President
Laurel Hill Advisory Group, LLC
WEBCAST PRESENTATION
SPEAKER
Keith E. Gottfried, Partner
Blank Rome LLP
The Watergate
600 New Hampshire Avenue, NW
Washington, DC 20037
202.772.5887
Gottfried@BlankRome.com
Keith E. Gottfried, Partner, Blank Rome LLP, concentrates his practice
primarily on mergers and acquisitions, corporate governance, shareholder
activism, SEC reporting requirements, NYSE and Nasdaq compliance and
general corporate matters. Keith has significant experience advising clients,
including public companies and their boards of directors, in connection with proxy
contests, consent solicitations and other activist campaigns. He also advises
clients in connection with assessing their vulnerability to unsolicited takeover bids
and activist shareholders and in the implementation of shareholder rights plans,
charter and by-law amendments and other defensive strategies. Keith is well
known in the areas of shareholder activism and corporate governance and has
written, and/or been quoted in, numerous articles discussing the challenges
presented by shareholder activism and what steps companies and their boards
of directors should take to prepare themselves. He is also a frequent panelist or
presenter at conferences, webinars and seminars focused on shareholder
activism and/or corporate governance.
WEBCAST PRESENTATION
SPEAKER
Francis H. Byrd, Senior Vice President
Laurel Hill Advisory Group, LLC
110 Wall Street, 27th Floor
New York NY 10005
917.338.3191
fbyrd@laurelhill.com
Francis H. Byrd, Senior Vice President, Laurel Hill Advisory Group, LLC,
leads Laurel Hill’s Corporate Governance/ Risk Advisory Practice and provides
strategic advice on corporate governance risk and shareholder engagement to
boards of directors and senior executive management of corporate issuers. Prior
to joining Laurel Hill, Francis served in a number of roles focusing on governance
risks facing public companies. Francis is a frequent speaker on corporate
governance issues, having appeared on Money for Breakfast, Fox Business, and
has been quoted by Reuters, Agenda magazine, and ISS Governance Weekly.
Francis is also a contributor to the Harvard Law School Forum on Corporate
Governance and Financial Regulation, the NACD/Directorship magazine blog and
Directors & Boards magazine. Francis has also writes extensively on corporate
governance issues serving as editor and chief commentator for Laurel Hill’s
BYRDWatch e-newsletter. Francis has also been selected by NACD Directorship
as one of thirty “People to Watch” in corporate governance in 2011 – “a list of
movers and shakers who merit serious attention as potential boardroom
influentials.”
MORE ON AVOIDING
SITTING DUCK SYNDROME:
HOW TO PREPARE FOR AND
RESPOND TO RULE 14A-8
SHAREHOLDER PROPOSALS
Webcast Presentation
Tuesday, February 14, 2012
Disclaimer
This presentation is intended to provide a general
introductory overview of the issues discussed and is not
intended to provide a complete analysis of such issues.
This presentation is for educational and informational
purposes only and is not intended, and should not be
construed as, legal advice. Readers should not act upon
the information contained in it without professional
counsel. Nor is this presentation intended to establish an
attorney-client relationship. This presentation may be
considered attorney advertising in some jurisdictions. The
hiring of an attorney is an important decision that should
not be based solely upon advertisements.
What is Rule 14a-8?
•
Addresses when a company must include a
shareholder’s proxy proposal in its proxy statement and
identify the proposal in its form of proxy when the
company holds an annual or special meeting of
shareholders.
•
In order to have the shareholder proposal included on a
company’s proxy card, and included along with a
supporting statement in the company’s proxy statement,
the shareholder must satisfy certain eligibility
requirements and follow certain procedures.
•
Under certain specified circumstances, the company is
permitted to exclude the proposal, but only after
submitting its reasons to the SEC and requesting a noaction letter.
Page 6
Who Are the Most Frequent Proponents of
Rule 14a-8 Shareholder Proposals?
•
Individual / Retail Shareholders (e.g., Chevedden Family,
Kenneth Steiner, William Steiner, Gerald R. Armstrong, Evelyn
Davis)
•
Labor Unions (e.g., AFSCME, AFL-CIO, United Brotherhood of
Carpenters and Joiners of America)
•
Public Pension and Retirement Funds (e.g., New York City
Retirement Systems, New York State Common Retirement Fund)
•
Investment Advisers
•
Faith-based investors
•
Hedge funds
•
Other activist investors
Source: FactSet Research Systems
/ SharkRepellent.net
Page 7
Who Are the Typical Recipients of
Rule 14a-8 Shareholder Proposals?
• Large cap issuers (including those with no obvious
performance, corporate governance, or share price
issues).
• Companies where “special interest” shareholders are
looking for force company into shareholder engagement.
• Companies with a history of corporate governance
issues.
• Companies with operating performance issues.
• Companies with share price performance issues.
• Companies that have failed to take appropriate action to
address Board-level issues.
Page 8
Types of Rule 14a-8
Shareholder Proposals
• Governance Shareholder Proposals – Takeover
Defenses:
 Right to call a special meeting
 Repeal of classified Board
 Right to act by written consent
 Repeal of supermajority requirements
 Reincorporation
 Redeem of vote on poison pills
Source: Institutional
Shareholder Services Inc.
Page 9
Types of Rule 14a-8
Shareholder Proposals
• Governance Shareholder Proposals – Board Issues:
 Require majority vote to elect directors
 Separation of chairman and CEO roles; independent
chairman
 Cumulative voting
 Executive succession planning
Source: Institutional
Shareholder Services Inc.
Page 10
Types of Rule 14a-8
Shareholder Proposals
• Governance Shareholder Proposals – Executive
Compensation:
 Award of performance-based stock awards
 Shareholder approval for future “golden parachute”
arrangements
 Retention period for stock awards
 Adopt anti-gross-ups policy
 Vote on executive death benefits
 No CEO’s on compensation committee
 Clawbacks
Source: Institutional
Shareholder Services Inc.
Page 11
Types of Rule 14a-8
Shareholder Proposals
• Social Responsibility Shareholder Proposals:
 Take action on climate change
 Report on sustainability
 Review / report on political spending / lobbying
 Adopt sexual orientation anti-bias policy
 Board diversity
Source: Institutional
Shareholder Services Inc.
Page 12
Popular Shareholder Proposals in 2011
• Most popular corporate governance shareholder proposals in
the 2011 proxy season related to the following (Source – ISS
data as of September 2011):
 Majority voting: (83 submitted, 40 have come / will come
to a vote, 37 withdrawn, 6 omitted).
 Repeal of a classified Board: (62 proposals submitted, 41
have come / will come to a vote, 13 withdrawn, 8 omitted).
 Authorization or enhancement of the right of
shareholders to call a special meeting of shareholders:
(51 submitted, 32 have come / will come to a vote, 7
withdrawn, 12 omitted).
 Authorization of shareholder action by written consent:
(40 submitted, 32 have come / will come to a vote, 1
withdrawn, 5 omitted).
Page 13
Corporate Governance
Shareholder Proposals Submitted in 2011
Source: Institutional
Shareholder Services Inc.
Page 14
Corporate Governance
Shareholder Proposals Submitted in 2011
Source: Institutional
Shareholder Services Inc.
Page 15
Corporate Governance
Shareholder Proposals Submitted in 2011
Source: Institutional
Shareholder Services Inc.
Page 16
Corporate Governance
Shareholder Proposals Submitted in 2011
Proposals Submitted:
(Stratified by Have Come / Will Come to a Vote, Omitted, Withdrawn)
Source: Institutional
Shareholder Services Inc.
Page 17
Proposals Submitted for
2012 Proxy Season – Some Highlights
• Proxy Access Proposals – 18 proxy access proposals submitted
as of February 1, 2012.
 Western Union to offer a management bylaw proposal to
implement its own version of proxy access.
 Hewlett-Packard Co. has agreed to put a proxy access bylaw
proposal on its ballot in 2013.
• Auditor Term Limits – Carpenter’s fund submitted proposals to
50 large cap companies, including Deere & Co, Walt Disney, and
Hewlett-Packard, requesting that they establish a policy to
periodically rotate their auditors.
• Disclosure of Lobbying Expenses – AFCSME, Walden Asset
Management, and other activist investors have filed 40
shareholder proposals to disclose their direct and indirect lobbying
expenses.
Page 18
Eligibility Requirements – General
•
Proponent must have continuously held at least $2,000 in
market value, or 1% of the company’s securities entitled to
be voted on at the meeting for at least one year by the date
the proponent submits the proposal (Rule 14a-8(b)(1)).
•
Proponent must have continuously held the securities
through the date of the meeting.
•
Proponent must be a registered holder of the company’s
securities, which means that the proponent’s name
appears in the company’s records as a shareholder (Rule
14a-8(b)(2)).
•
If proponent is not a registered holder, then, at the time that
the proponent submits its proposal, the proponent must
prove its eligibility (Rule 14a-8(b)(2)(i)).
Page 19
Eligibility Requirements –
Demonstrating Proof of Ownership
• Demonstrating proof of ownership:
 Submit to the company a written statement from the “record”
holder of the securities (usually a broker or bank) verifying that, at
the time, the proponent submitted its proposal, the proponent
continuously held the securities for at least one year (Rule 14a8(b)(2)(i)).
 SEC Staff Legal Bulletin 14F (October 18, 2011) – SEC now
takes the view that only DTC participants should be viewed as
“record” holders of securities that are deposited at DTC.
Accordingly, the broker or bank submitting the written statement
must be a DTC participant.
• Shareholders and companies can confirm whether a particular
broker or bank is a DTC participant by checking DTC’s
participant list, which is currently available on the Internet at
http://www.dtcc.com/downloads/membership/directories/dtc/alpha.pdf
Page 20
Eligibility Requirements –
Demonstrating Proof of Ownership
• Demonstrating proof of ownership (cont’d):
 SLB 14F reverses the SEC’s position in its no-action letter
response to Hain Celestial (Oct. 1, 2008), which had required
companies to accept proof of ownership letters from brokers
in cases where, unlike the positions of registered owners and
brokers and banks that are DTC participants, the company is
unable to verify the positions against its own or its transfer
agent’s records or against DTC’s securities position listing.
 In Hain Celestial, the company had sought to exclude a
proposal submitted by Kenneth Steiner pursuant to Rules
14a-8(b) and 14a-8(f) but the SEC declined to grant noaction relief.
Page 21
Eligibility Requirements –
Demonstrating Proof of Ownership
• Demonstrating proof of ownership (cont’d):
 A beneficial holder of securities can also prove ownership if it has filed
a Schedule 13D, Schedule 13G, Form 3, Form 4 or Form 5, reflecting
ownership of the shares as of or before the date on which the one-year
eligibility period begins. If any one of these forms has been filed with
the SEC, the proponent may demonstrate its eligibility by submitting to
the company (Rule 14a-8(b)(2(ii)):
• a copy of the schedule and/or form, and any subsequent
amendments reporting a change in ownership level;
• a written statement that the proponent continuously held the
required number of shares for the one-year period as of the date of
the statement; and
• a written statement from the proponent that the proponent intends to
continue ownership of the shares through the date of the meeting
(Rule 14a-8(b)(2)(ii)(C)).
Page 22
Eligibility Requirements –
Deadlines for Submitting a Proposal
• Calculating the deadline – For a shareholder proposal being
submitted for a regularly scheduled annual meeting, the proposal
must be received at the company’s principal executive offices not
less than 120 calendar days before the date of the company’s
proxy statement released to shareholders in connection with the
previous year’s annual meeting (Rule 14a-8(e)).
• Check last year’s proxy statement – For annual meetings, the
deadline should be listed in the company’s proxy statement for the
prior year.
• Effect of shifting the date of the annual meeting – If the
company did not hold an annual meeting last year or has changed
the date of its meeting for this year more than 30 days from last
year’s meeting, the deadline should be included in one of the
company’s quarterly reports on Form 10-Q.
Page 23
Eligibility Requirements –
Other Requirements
• Number of Proposals that Can Be Submitted – each shareholder
may not submit more than one proposal to a company for a
particular shareholders’ meeting (Rule 14a-8(c)).
• Length of Proposal – The proposal, including any supporting
statement, may not exceed 500 words (Rule 14a-8(d)).
• Presentation of Proposal at Meeting – Either the proponent or its
representative, who is qualified under state law to present the
proposal on the proponent’s behalf, must attend the meeting to
present the proposal.
 If proponent or its qualified representative fails to appear and
present the proposal without good cause, the company will be
permitted to exclude all of the proponent’s proposals for any
meetings held in the following two calendar years (Rule 14a8(h)(3)).
Page 24
Rule 14a-8 Shareholder Proposals –
Key Deadlines
120 days before
the release date
disclosed in the
previous year’s
proxy statement
Proposals for a regularly scheduled annual meeting must be
received at the company’s principal executive offices not less
than 120 calendar days before the release date of the previous
year’s annual meeting proxy statement. Both the release date
and the deadline for receiving rule 14a-8 proposals for the next
annual meeting should be identified in that proxy statement.
14-day notice of
defect(s)/
response to
notice of
defect(s)
If a company seeks to exclude a proposal because the
shareholder has not complied with an eligibility or procedural
requirement of rule 14a-8, generally, it must notify the
shareholder of the alleged defect(s) within 14 calendar days of
receiving the proposal. The shareholder then has 14 calendar
days after receiving the notification to respond. Failure to cure
the defect(s) or respond in a timely manner may result in
exclusion of the proposal.
Page 25
Rule 14a-8 Shareholder Proposals –
Key Deadlines
80 days before the
company files its
definitive proxy
statement and form
of proxy
If a company intends to exclude a proposal from its proxy materials, it
must submit its no-action request to the SEC no later than 80 calendar
days before it files its definitive proxy statement and form of proxy with
the SEC.
30 days before the
company files its
definitive proxy
statement and form
of proxy
If a proposal appears in a company’s proxy materials, the company
may elect to include its reasons as to why shareholders should vote
against the proposal. This statement of reasons for voting against the
proposal is commonly referred to as a statement in opposition. Except
as explained in the box immediately below, the company is required to
provide the shareholder with a copy of its statement in opposition no
later than 30 calendar days before it files its definitive proxy statement
and form of proxy.
5 days after the
company has
received a revised
proposal
If the no-action response provides for shareholder revision to the
proposal or supporting statement as a condition to requiring the
company to include it in its proxy materials, the company must provide
the shareholder with a copy of its statement in opposition no later than
5 calendar days after it receives a copy of the revised proposal.
Page 26
How to Prepare for the Submission
of Rule 14a-8 Proposals?
• Review shareholder profile – determine whether a company has any
shareholders that would be likely to submit a Rule 14a-8 shareholder
proposal.
• Review proposals submitted by your shareholders at other
companies – review any shareholder proposals that have been submitted
by your shareholders at other companies and assess whether you are at
risk for receiving a similar proposal.
• Engage in an active dialogue with your shareholders – ensure that you
understand the concerns and issues of your shareholders and that they do
not need to resort to a shareholder proposal to force a dialogue with the
company.
• Proactively address proxy advisory firm issues – improve “standing”
with the proxy advisory firms like ISS and Glass Lewis.
• Consider pre-emptive action – consider whether to adopt a proposal
similar to that which you believe is likely to be proposed.
Page 27
What To Do If Your Company Receives a
Rule 14a-8 Shareholder Proposal?
• Determine whether proposal meets procedural / eligibility
requirements (ownership threshold, ownership duration, verification
of ownership from record holder that is a DTC participant,
submission by deadline).
• Determine whether there is a substantive basis for seeking to
exclude the proposal from the company’s proxy statement.
• Engage with proponent and seek withdrawal of proposal.
• Determine whether to seek a no-action letter to exclude the
proposal.
• Review SEC’s website to see if other companies are seeking noaction letters on similar proposals
• Consult with your peer companies to see if any of them have
received a similar proposal.
Page 28
What To Do If Your Company Receives a
Rule 14a-8 Shareholder Proposal?
•
Determine whether to oppose the proposal if it will not be excluded.
•
Determine whether to pre-empt the proposal with a similar management
proposal but with more favorable terms (e.g., higher threshold to call a
special meeting).
•
Engage a proxy solicitor to assist with evaluating the chances of the
proposal being successful if brought to a vote and in developing a
strategy to defeat the proposal.
•
Review shareholder profile and assess how your shareholders have
voted on similar proposals in the past; also assess how your
shareholders would vote on an alternative proposal proposed by
management.
•
Review corporate governance profile.
•
Assess standing with proxy advisory firms and how proxy advisory firms
will react to the proposal and any alternative proposal that management
may propose.
Page 29
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
•
The company may seek to exclude a Rule 14a-8
shareholder proposal on either procedural or
substantive grounds.
•
Burden is on the company to demonstrate that it is
entitled to exclude the proposal (Rule 14a-8(g)).
•
If the company intends to exclude a proposal from its
proxy materials, it must file its reasons with the SEC in
the form of a no-action letter request no later than 80
calendar days before it files its definitive proxy
statement and form of proxy with the SEC (Rule 14a8(j)).
Page 30
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• No-Action Letter Process:
 If the company intends to exclude a proposal from its proxy materials, it
must file its reasons with the SEC no later than 80 calendar days before
it files its definitive proxy statement and form of proxy with the SEC.
The company must simultaneously provide the proponent with a copy of
its submission.
 The company must include in the no-action letter request:
• the proposal;
• an explanation of why the company believes that it may exclude the
proposal which should refer to the most recent applicable authority,
such as prior SEC no-action letters issued under the rule; and
• a supporting opinion of counsel when such reasons are based on
matters of state or foreign law.
 Pursuant to SLB No. 14D (Nov 7, 2008), the letter and related
correspondence from the proponent should be submitted to the SEC via
email to shareholderproposals@sec.gov.
Page 31
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Procedural / Eligibility Grounds:
 Failure to meet ownership threshold.
 Failure to meet continuous ownership requirements.
 Failure to provide proof of ownership from registered holder who is a DTC
participant (BUT ONLY IF THE COMPANY INFORMS THE PROPONENT OF
WHAT WOULD CONSTITUTE APPROPRIATE DOCUMENTATION UNDER
RULE 14a-8(b) IN THE COMPANY’S REQUEST FOR ADDITIONAL
INFORMATION FROM THE PROPONENT).
 Failure to present prior shareholder proposal.
 Failure to meet the company’s Rule 14a-8 deadline for the receipt of a
shareholder proposal.
 Failure to correct a properly notified procedural or eligibility deficiency.
 Failure, within the past two calendar years, to comply with previous promise
to hold the required number of securities through the date of the
shareholders’ meeting (check ownership as of date of the annual meeting).
Page 32
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Procedural Grounds – the company may seek to exclude
a Rule 14a-8 shareholder proposal on procedural or eligibility grounds as
long as the company notifies the proponent of the problem and the
proponent fails to adequately correct it (Rule 14a-8(f)).
 The company has 14 calendar days from receipt of the proposal to
notify the proponent in writing of any procedural or eligibility
deficiencies.
 Proponent’s response must be postmarked or transmitted electronically
no later than 14 calendar days from the date the proponent received
the company’s notification.
 The company need not provide the proponent with notice of the
deficiency if it cannot be remedied (e.g., failure to submit the proposal
by the applicable deadline).
 If the company intends to exclude the proposal on procedural or
eligibility grounds, it will still have to submit a no-action letter to the
SEC.
Page 33
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(1) – Improper Under State Law:
Proposal not a proper subject for action by
shareholders under the laws of the jurisdiction of the
company’s organization.
•
Rule 14a-8(j)(2)(iii) requires the company to provide
a supporting opinion of counsel when basing its
reasons for omitting a proposal on a matter of state
or foreign law.
“Precatory” vs. binding proposals:
•
SEC is much more tolerant of “precatory” proposals
that ask a Board to “take necessary steps” but don’t
require the Board to take any action.
Page 34
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(2) – Violation of Law: Proposal
would cause the company to violate any state,
federal, or foreign law to which it is subject.
• Rule 14a-8(j)(2)(iii) requires the company to
provide a supporting opinion of counsel when
basing its reasons for omitting a proposal on a
matter of state or foreign law.
Page 35
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(3) – Violation of Proxy Rules: Proposal or supporting
statement is contrary to any of the SEC’s proxy rules, including Rule 14a-9,
which prohibits materially false or misleading statements.
• e.g., proposal is “vague and indefinite" because it is impossible for the
board of directors or the shareholders to reasonably understand the
scope or effect of the action they are being asked to take.
• e.g., failure to define a number of critical phrases, inclusion of
ambiguous terms or otherwise provide guidance on what is necessary
to implement the proposal; terms subject to multiple interpretations.
• Shareholders cannot make an informed decision on the merits of the
proposal without knowing what they are voting on.
• Can the shareholders voting on the proposal and the Board in
implementing the proposal, if adopted, interpret the proposal differently,
such that any action taken by the Board in implementing the proposal
might be significantly different than that actions envisioned by the
shareholders?
Page 36
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(4) – Personal Grievance; Special
Interest: Proposal relates to redress of a personal
claim or grievance against company or other person,
or is designed to result in a benefit to the
shareholder, or to further a personal interest, which is
not shared by the other shareholders at large.
• What are the motives of the proponent?
• e.g., “disgruntled” former employees
Page 37
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(5) – Relevance: Proposal relates to operations which
account for less than 5 percent of the company's total assets at the end of
its most recent fiscal year, and for less than 5 percent of its net earnings
and gross sales for its most recent fiscal year, and is not otherwise
significantly related to the company's business.
• SEC has generally interpreted the phrase “otherwise significantly
related to the company’s business” to require proposals that raise
significant policy issues to be included in proxy materials despite the
fact that they implicate less than 5% of a company’s assets.
• Proposals that raise a significant policy issue are deemed to be
significantly related to a company’s business despite the fact that
they may account for a very small amount of the company’s
operations because if they are a matter of significant social attention
they may stir up a level of sentiment in shareholders that is not
proportionate to the level of the company’s involvement. Thus,
shareholders would want the opportunity to vote on the matter.
Page 38
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(6) – Absence of Power / Authority: If
the company would lack the power or authority to
implement the proposal.
• e.g., where a proposal would require intervening
actions by third parties that are not subject to the
company's control.
• e.g., proposals that require a third party to
cooperate.
• A company may even exclude a shareholder
proposal requiring a third party's cooperation if it
exerts some, but only limited, influence over the
third party.
Page 39
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(7) – Management Functions: Proposal deals with a matter
relating to the company's ordinary business operations.
• The ordinary business exclusion – confines the resolution of ordinary
business problems to management and the board of directors.
• Exchange Act Release No. 40018 (May 21, 1998): the ordinary business
exclusion rests on two central considerations:
 the subject matter of the proposal – "certain tasks are so fundamental
to management's ability to run a company on a day-to-day basis that
they could not, as a practical matter, be subject to direct shareholder
oversight.”
 the degree the proposal attempts to "micro-manage" the company by
"probing too deeply into matters of a complex nature upon which
shareholders, as a group, would not be in a position to make an
informed judgment.”
• e.g. – compliance with applicable laws and regulations; selection of
auditors; sale of a non-core business or asset; risk management; reports to
shareholders on ordinary business matters.
Page 40
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(8) – Director Elections (as amended
effective Sept. 20, 2011): If the proposal:
• would disqualify a nominee who is standing for
election;
• would remove a director from office before the
expiration of such director’s term;
• questions the competence, business judgment, or
character of one or more nominees or directors;
• seeks to include a specific individual in the
company’s proxy materials for election to the board
of directors; or
• otherwise could affect the outcome of the upcoming
election of directors.
Page 41
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(8) – Director Elections (as amended
effective Sept. 20, 2011):
• Election exclusion under Rule 14a-8(i)(8) has been
substantially narrowed.
• Companies can no longer rely on Rule 14a-8(i)(8) to
exclude a proposal seeking to establish a procedure in
a company’s governing documents for the inclusion of
one or more shareholder nominees for director in the
company’s proxy materials (e.g., “proxy access
proposals”).
• The proposal can still be excluded if it seeks to include
a specific individual in the company’s proxy materials
for election to the Board.
Page 42
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(9) – Conflicts with Company’s Proposal: Proposal
directly conflicts with one of the company’s own proposals to be
submitted to shareholders at the same meeting (no-action letter
must specify the points of conflict with company’s proposal).
•
Need to avoid presenting shareholders with alternative and
conflicting decisions as well as inconsistent and ambiguous
results.
•
e.g., where the shareholder sponsored proposal contains a
threshold that differs from a company-sponsored proposal.
•
e.g., shareholder proposal to amend the bylaws to give holders
of at least 10% of the voting shares the power to call a special
meeting of shareholders submitted for meeting where
management proposes to allow shareholders holding at least
25% of the voting shares the power to call a special meeting.
•
See, e.g., eBay, Inc. (January 13, 2012).
Page 43
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(10) – Substantially Implemented: Proposal has
already been substantially implemented by the company.
•
Proposal need not be fully effected.
•
Do the company’s policies & practices compare favorably
with those requested by the proposal.
•
Does not require the exact same means of implementation.
•
Are the essential objectives of the proposal addressed?
•
Do the company’s actions satisfactorily address the
concerns underlying the proposal?
•
Mootness exclusion relating to compliance with regulatory
and disclosure requirements required by a third party such
as the SEC, national stock exchanges, and the FASB.
Page 44
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(11) – Duplication: Proposal
substantially duplicates another proposal previously
submitted to the company by another proponent that
will be included in the company's proxy materials for
the same meeting.
Page 45
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(12) – Resubmissions: if the proposal deals with
substantially the same subject matter as another proposal or
proposals that has or have been previously included in the
company’s proxy statement within the preceding 5 years, a
company may exclude it from the proxy materials for any meeting
held within 3 years of the last time it was included if the proposal
received: (i) less than 3% of the vote if proposed once within the
preceding 5 years; (ii) less than 6% of the vote on its last
submission to shareholders if proposed twice previously within the
preceding 5 years; or (iii) less than 10% of the vote on its last
submission to shareholders if proposed three times or more
previously within the preceding 5 years.
 See, e.g., The Coca-Cola Company (January 17, 2012); General
Electric Company (January 19, 2012).
Page 46
Seeking the Exclusion of a
Rule 14a-8 Shareholder Proposal
• Excluding on Substantive Grounds:
 Rule 14a-8(i)(13) – Dividends: Proposal relates to
specific amounts of cash or stock dividends.
 e.g. – a proposal requesting that the shareholders
approve a liquidation or sale of the company and a
distribution of at least $X per share in dividends.
 See, e.g., Bassett Furniture Industries, Incorporated
(January 23, 2012).
Page 47
THANK YOU!