Division of Corporation Finance Addresses the Shareholder Proposal Process

November 10, 2008

On November 7, 2008, the Securities and Exchange Commission’s Division of Corporation Finance (the "Division") issued Staff Legal Bulletin No. 14D (the "Bulletin"), which briefly addresses four technical points regarding the shareholder proposal process under Rule 14a-8 of the Securities Exchange Act of 1934, as amended ("Rule 14a-8").  The Bulletin: 

  • Confirms that if a proponent is listed in a company’s records as a registered holder, but those records indicate that the proponent has not owned the minimum amount of securities for the required time period, the company must send the proponent a notice of defect if it wishes to exclude the proponent’s proposal on eligibility grounds;
  • Clarifies that the Division may permit a proponent to avoid exclusion of a proposal that recommends, requests, or requires that the board of directors make a change that the board is unable to do on its own – such as amending the company’s certificate of incorporation, which requires both board and shareholder action – by allowing the proponent to revise the proposal to provide that the board "take the steps necessary" to effect the requested action.  This interpretation appears to reflect reconsideration of letters issued last proxy season that concurred with the exclusion of shareholder proposals asking that a board adopt cumulative voting (which under Delaware law must be set forth in the certificate and thus requires both board and shareholder approval).
  • Provides that companies and shareholders may e-mail the Division Rule 14a-8 no-action requests and related correspondence at [email protected]; and
  • Clarifies that Rule 14a-8 requires proponents to provide companies with correspondence they send to the Division.  In addition, the Bulletin reiterates that both the company and the proponent should promptly forward to each other copies of all correspondence provided to the Division in connection with Rule 14a-8 no-action requests.  The Bulletin also encourages companies and proponents to use the same means of transmitting correspondence to each other as they use to transmit materials to the Division.  For example, if a company transmits correspondence to the Division via overnight mail, the company should transmit a copy to the proponent via overnight mail as well.

The Bulletin is available at: http://www.sec.gov/interps/legal/cfslb14d.htm.

Gibson, Dunn & Crutcher LLP 

Gibson, Dunn & Crutcher’s Securities Regulation and Corporate Governance Practice Group is available to assist in addressing any questions you may have regarding these issues.

Please contact the Gibson Dunn attorney with whom you work, or any of the following:

John Olson (202-955-8522, [email protected]),
Brian Lane (202-887-3646, [email protected]),
Ron Mueller (202-955-8671, [email protected]),
Amy Goodman, (202-955-8653, [email protected]), or
Beth Ising (202-955-8287, [email protected])

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