SEC Adopts Final Rules on Proxy Access and Electronic Shareholder Forums

November 28, 2007

At an open meeting held on November 28, 2007, the Securities and Exchange Commission (“SEC”) adopted an amendment to the SEC’s shareholder proposal rule (Rule 14a-8) codifying the SEC’s historical interpretation of Rule 14a-8(i)(8) pursuant to which proxy access shareholder proposals are excludable. At today’s meeting, the SEC also adopted amendments to its proxy rules intended to facilitate the ability of companies and shareholders to communicate in electronic shareholder forums. 

A summary of the new rules is set forth below. This summary is based on information provided at the SEC’s open meeting, and therefore may not reflect nuances that will appear in the SEC’s adopting releases, which are expected to be issued shortly.

Proxy Access

In July, the SEC proposed two alternative proposals addressing whether companies must include proxy access shareholder proposals in company proxy statements. The first alternative interpreted and proposed an amendment to Rule 14a-8(i)(8) codifying the SEC’s long-standing interpretation that proxy access shareholder proposals are excludable. The second alternative proposed amendments to permit the inclusion of certain proxy access shareholder proposals and to require additional disclosures by proponents and companies when such proposals are included in company proxy statements. The SEC received over 34,000 comments on the proposals. Today, by a vote of 3-1, with Commissioner Nazareth dissenting, the SEC adopted the first proposed alternative and reaffirmed the SEC’s historical interpretation of Rule 14a-8(i)(8). 

The text of Rule 14a-8(i)(8) currently provides that a shareholder proposal may be excluded if it “relates to an election” of directors. The amendment as proposed and as adopted today revises the exclusion to specify that a proposal may be excluded if it “relates to a nomination or an election” of directors or “a procedure for such nomination or election.” The added references to “nomination” and “procedure” are intended to clarify Rule 14a-8(i)(8) in a manner consistent with the SEC’s interpretation of that exclusion. The amendment also will make clear that the reference to “procedure” relates only to procedures that would result in a contested election, either in the year in which the proposal is submitted or in subsequent years. 

At the open meeting, Chairman Cox stated that the amendment is intended to serve as a short-term solution to provide clarity and certainty for companies and shareholders during the 2008 proxy season. He further stated that the SEC intends to revisit the issue next year in an attempt to find a more permanent solution in time for the 2009 proxy season.

The amendment will be effective 30 days after it is published in the Federal Register. 

Electronic Shareholder Forums

The SEC also voted unanimously to adopt, substantially as proposed, amendments to the SEC’s proxy rules intended to facilitate the ability of companies and shareholders to communicate in electronic shareholder forums by removing possible impediments to such forums under the SEC’s proxy rules. These amendments will provide that:

  • companies and others who establish, maintain or operate electronic shareholder forums are not liable under the federal securities laws for any statement or other information posted by others on electronic shareholder forums; and
  • persons not soliciting proxies who post communications on electronic shareholder forums more than sixty days in advance of a shareholders’ meeting are exempt from most of the proxy rules.

The rule amendments will not require or prescribe the format or content of electronic shareholder forums, but instead will allow companies and others to develop their own approaches to such forums.

The amendments will become effective 30 days after they are published in the Federal Register. 

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or John F. Olson (202-955-8522, [email protected]), Brian J. Lane (202-887-3646, [email protected]), Ronald O. Mueller (202-955-8671, [email protected]), Amy L. Goodman (202-955-8653, [email protected]), or Elizabeth Ising (202-955-8287, [email protected]) in the firm’s Washington, D.C. office. 

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