Shareholder Proposals
Staff Legal Bulletin No. 14D (CF)
Action: Publication of CF Staff Legal Bulletin
Date: November 7, 2008
Summary: This staff legal bulletin provides information for companies and shareholders regarding rule 14a-8 under the Securities Exchange Act of 1934.
Supplementary Information: The statements in this legal bulletin represent the views of the Division of Corporation Finance. This bulletin is not a rule, regulation, or statement of the Securities and Exchange Commission. Further, the Commission has neither approved nor disapproved its content. The references to “we,” “our,” and “us” are to the Division of Corporation Finance.
Contacts: For further information, please contact the Office of Chief Counsel in the Division of Corporation Finance at (202) 551-3500.
A. What is the purpose of this bulletin?
This bulletin is part of a continuing effort by the Division of Corporation Finance to identify and provide guidance on issues that commonly arise under rule 14a-8. Specifically, this bulletin contains information regarding:
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shareholder proposals that recommend, request, or require a board of directors to unilaterally amend the company’s articles or certificate of incorporation;
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a new e-mail address established for the receipt of rule 14a-8 no-action requests and related correspondence;
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whether a company must send a notice of defect if the company’s records indicate that the proponent has not owned the minimum amount of securities for the required period of time as set forth in rule 14a-8(b); and
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the requirement that a proponent send copies of correspondence to the company and the manner in which the company and a proponent should provide additional correspondence to us and to each other.
The following additional guidance regarding rule 14a-8 is available on the Commission’s web site:
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SLB No. 14, which explains the rule 14a-8 no-action process and addresses matters of interest to companies and proponents;
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SLB No. 14A, which clarifies our position on shareholder proposals related to equity compensation plans;
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SLB No. 14B, which clarifies and updates some of the guidance contained in SLB No. 14; and
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SLB No. 14C, which addresses additional matters of interest to companies and proponents, and clarifies and updates some of the guidance contained in SLB No. 14 and SLB No. 14B.
B. A shareholder proposal recommends, requests, or requires that the board of directors amend the company’s charter. If, under applicable state law, the charter can be amended only if the amendment is initiated by the board and subsequently approved by the shareholders, may a company exclude a proposal under rule 14a-8(i)(1), rule 14a-8(i)(2), or rule 14a-8(i)(6) based solely on the argument that the board does not have the unilateral authority or power under state law to amend the charter?
If a proposal recommends, requests, or requires the board of directors to amend the company’s charter, we may concur that there is some basis for the company to omit the proposal in reliance on rule 14a-8(i)(1), rule 14a-8(i)(2), or rule 14a-8(i)(6) if the company meets its burden of establishing that applicable state law requires any such amendment to be initiated by the board and then approved by shareholders in order for the charter to be amended as a matter of law. In accordance with longstanding staff practice, however, our response may permit the proponent to revise the proposal to provide that the board of directors “take the steps necessary” to amend the company’s charter. If the proponent revises the proposal in this manner within the time frame specified in our response letter, we do not believe there would be a basis for the company to exclude the proposal under rule 14a-8(i)(1), rule 14a-8(i)(2), or rule 14a-8(i)(6). The chart below includes examples of revisions that we have previously permitted in response to no-action requests similar to those discussed in this question and answer.
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Company
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Proposal
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Date of our response
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Our response
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SBC Communications Inc.
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Resolved that as of December 31, 2005 the number of SBC Board of Director seats will be reduced from twenty one (21) to fourteen (14).
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Jan. 11, 2004
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We concurred in the company’s view that the proposal could be excluded under rules 14a-8(i)(2) and 14a-8(i)(6), unless the proponent revised the proposal as a recommendation or request that the board of directors take the steps necessary to implement the proposal.
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Gyrodyne Co. of America, Inc.
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It is proposed that the classified board be abolished and all Directors, effective after the election of Directors in 1999, be elected annually.
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Aug. 18, 1999
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We concurred in the company’s view that the proposal could be excluded under rule 14a-8(i)(1), unless the proponent revised the proposal as a recommendation or request that the board of directors take the steps necessary to implement the proposal.
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Sears, Roebuck and Co.
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Resolved: That the stockholders . . . urge the Board of Directors to amend the Company’s Restated Certificate of Incorporation to declassify the Board of Directors for the purpose of Director elections.
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Feb. 17, 1989
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We concurred in the company’s view that the proposal could be excluded under rules
14a-8(c)(2) and 14a-8(c)(6) [now rules 14a-8(i)(2) and 14a-8(i)(6)], unless the proponent revised the proposal to urge that the board of directors take the steps necessary to effect the proposed amendment to the certificate of incorporation.
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C. May companies and shareholders e-mail us rule 14a-8 no-action requests and related correspondence?
Yes. We have established a new e-mail address for the receipt of no-action requests and correspondence related to rule 14a-8. Companies and proponents may submit requests for no-action relief under rule 14a-8 and related correspondence to us at shareholderproposals@sec.gov. This mailbox should not be used to submit other types of no-action requests or correspondence. Please include your name and telephone number in any submission directed to this mailbox. Remember that your e-mail is not confidential, and others may intercept and read your e-mail. We will process no-action requests and related correspondence received through this mailbox in the same manner as requests and correspondence submitted in paper.
D. If a proponent is listed in a company’s records as a registered holder, and the records indicate that the proponent has not owned the minimum amount of securities for the required period of time as set forth in rule 14a-8(b), must the company send the proponent a notice of defect if it wishes to exclude the proposal on eligibility grounds?
Yes. If a proponent is listed in a company’s records as a registered holder, the company can confirm that the proponent’s holdings satisfy the ownership eligibility requirements of rule 14a-8(b). Because the proponent can also hold the company’s securities by other means, however, such as through a broker or bank, the company’s records do not prove conclusively that the proponent fails to meet the ownership eligibility requirement. As a result, in situations in which a company’s records indicate that the proponent does not satisfy the ownership eligibility requirement in rule 14a-8(b), the company must inform the proponent that the proponent must provide proof of ownership that satisfies the requirements of rule 14a-8(b) if the company intends to exclude the proposal based upon the proponent’s failure to satisfy the requirements of rule 14a-8(b).
E. Does rule 14a-8 require proponents to provide companies with any correspondence they send to us? If so, how should the correspondence be transmitted?
Yes. Rule 14a-8(k) requires a proponent to provide the company with a copy of any correspondence submitted in response to the company’s no-action request. In addition, as stated in section G.9 of SLB No. 14, both the company and the proponent should promptly forward to each other copies of all correspondence provided to us in connection with rule 14a-8 no-action requests. We encourage companies and proponents to use the same means of transmitting correspondence to each other as they use to transmit materials to us. For example, if a company transmits correspondence to us via overnight mail, the company should transmit a copy to the proponent via overnight mail as well.
F. Conclusion
We hope that this bulletin, along with SLB No. 14, SLB No. 14A, SLB No. 14B, and SLB No. 14C, helps you gain a better understanding of rule 14a-8, the no-action request process, and our views on some significant issues that commonly arise during our review of rule 14a-8 no-action requests. We believe that these bulletins contain information that will assist in the efficient operation of the rule 14a-8 process for both companies and shareholders.