The SEC recently announced that it will not seek a rehearing or Supreme Court review of the decision by the U.S. Court of Appeals for the D.C. Circuit vacating SEC Rule 14a-11 on proxy access, which would have required companies subject to the Exchange Act’s proxy rules to include in their proxy materials shareholder nominees for the board of directors in some circumstances. See our July 26, 2011 update for more information on the Court's decision.
Chairman Mary Schapiro has stated that she remains committed to finding a way to make it easier for shareholders to nominate directors, but at the same time, she wants to carefully review the court's objections and previously received comments before moving forward.
This Update highlights the key issues for public companies resulting from these actions.
Amended Rule 14a-8(i)(8) Will Be Effective for 2012 Proxy Season. The SEC's voluntary stay of a companion amendment to Rule 14a-8(i)(8) expired on September 14, 2011 when the court's ruling was finalized. On September 15, 2011, the SEC released a notice that the amendment to Rule 14a-8(i)(8), along with the other new and amended rules adopted in the same SEC August 25, 2010 final rule release (other than the vacated Rule 14a-11), will take effect upon publication of the SEC notice in the Federal Register.
- What Does Rule 14a-8(i)(8) Do?In its current form, Rule 14a-8(i)(8) permits companies to exclude shareholder proposals that relate to the election of directors. As amended, Rule 14a-8(i)(8) will allow shareholders to require companies, including investment companies, to include in the companies’ proxy materials proposals that would amend, or request an amendment to, a company's governing documents to change director nomination procedures. This means that shareholders will be able to propose binding bylaw amendments to cause companies to implement a shareholder's preferred version of proxy access to the extent permissible under applicable state law. The SEC said in its final rule release that it intended amended Rule 14a-8)(i)(8) to facilitate shareholders’ rights to nominate directors, and thus allow private ordering between shareholders and companies on a company-by-company basis, as these rights continue to evolve under state law.
- Companies May Still Exclude Some Shareholder-Proposed Nominees. Rule 14a-8(i)(8), as amended, provides that companies will still be permitted to exclude a shareholder proposal if it:
- Would disqualify a nominee who is standing for election;
- Would remove a director from office before his or her term expired;
- 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.
Take Steps Now to Prepare for Potential Proxy Access Shareholder Proposals. Because these rules will be in effect for the 2012 proxy season, public companies should take steps now to prepare for possible proxy access proposals in the upcoming proxy season, including identifying and engaging with large and active shareholders to determine their concerns, educating board members about the possibility of access proposals, and reviewing the company's advance-notice bylaws and procedures for shareholder nomination of directors.
You can find the full text of the SEC’s notice release at http://www.sec.gov/rules/final/2011/33-9259.pdf. You can find the full text of the SEC's press release announcing its decision not to seek rehearing of the decision by the U.S. Court of Appeals for the D.C. Circuit at http://www.sec.gov/news/press/2011/2011-179.htm. You can find the SEC's final rule release for amended Rule 14a-8(i)(8) and the other new and amended proxy access rules at http://www.sec.gov/rules/final/2010/33-9136.pdf.
© 2011 Perkins Coie LLP