SEC Questionaire on Shareholder Proposals: Rule 14a-8(c)
SJ-5-97
February 6, 1997
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The U.S. Securities and Exchange
Commission requests suggestions on:
How to improve the shareholder proposal process for shareholders and companies.
Rule 14a-8 permits shareholders to submit proposals to a company requesting that items be put to a shareholder vote at the company's next annual or special meeting. Rule 14a-8 provides guidelines for submitting proposals, as well as grounds on which a company may decline to put a proposal to a vote.
The U.S. Securities and Exchange Commission (SEC) is the federalgovernment agency that oversees disclosure of information about companies toinvestors. The Division of Corporation Finance, a part of the SEC, wants to hear from investors, companies and other interested parties on how to improve the way companies determine which shareholder proposals to include in their proxy statements.
A brief description of the current process
Rule 14a-8 of the Securities Exchange Act of 1934 ("Exchange Act") governsshareholder proposals. Shareholders who are eligible under this rule may submit proposals containing items to be voted on at the next annual or special meeting of shareholders. To be eligible to submit a proposal, a shareholder must:
* be a beneficial owner of at least 1% or $1,000 in market value of securities entitled to vote on the proposal at the meeting;
* have owned these securities for at least one year; and
* continue to own them through the date of the meeting, and attend the meeting.
If the company includes a shareholder's proposal in its proxy statement, the matter appears in the proxy materials with management's items. And, at the next annual or special meeting of shareholders, those items are voted on.
The company may also exclude shareholder proposals for any of
the reasons listed in Rule 14a-8(c):
* (c)(1): the proposal is not a proper action for shareholders
under the law of the company's state of incorporation;
* (c)(2): the proposal would violate state or federal law;
* (c)(3): the proposal is materially false or misleading;
* (c)(4): the proposal relates to a personal claim or grievance;
* (c)(5): the proposal relates to operations which account for
less than five percent of the company's total assets, earnings
and sales and is not otherwise significantly related to the company's
business;
* (c)(6): the company cannot effectuate the proposal;
* (c)(7): the proposal relates to the company's ordinary business;
* (c)(8): the proposal relates to an election to office;
* (c)(9): the proposal is counter to a proposal submitted by the
company for the same meeting;
*(c)(10): the proposal has been rendered moot;
* (c)(11): the proposal is substantially duplicative of a proposal
that the company has already received and intends to include in
its proxy statement;
*(c)(12): the proposal deals with substantially the same subject
matter as previously included proposals and the previous proposals
received:
(i) less than 3% of the vote if proposed once previously;
(ii) less than 6% of the vote if proposed twice previously;
(iii) less than 10% of the vote if proposed three times previously;
and
* (c)(13): the proposal relates to a specific amount of cash or
stock dividends.
However, before the company may reject any proposal, it first must submit its reasons for doing so to us, and request that we comment on its decision. We respond to each request by issuing a "no-action letter" that offers informal advice as to whether the company's stated reasons for rejecting the proposal appear to be appropriate.
Our review of the current process
Under the National Securities Markets Improvement Act of 1996,
the SEC must submit a report to Congress by October 11, 1997 that
analyzes the current shareholder proposal process. As a part of
the report, we are surveying companies and shareholders regarding
their experiences in the shareholder proposal process. In addition,
we are soliciting suggestions for revisions to the shareholder
proposal process, including alternatives to simplify the process
and open companies' proxy materials to a wider range of shareholder
proposals. While we have already received some suggestions for
reform, we have not reached any conclusions about whether
these proposed revisions will improve upon the current process.
Some groups have suggested adjustments to the existing rule, while
others have suggested fundamentally different approaches.
Your input is very important
Please respond to the questions below. Although completing this survey is voluntary, your input is very important to us because the shareholder proposal rule is designed to provide shareholders and companies with a vehicle for communicating on matters of common concern. Shareholders should respond to Parts A, C and D only (skip Part B). Companies that may receive shareholder proposals should respond to Parts A, B, and D only (skip part C). If you do not complete the entire questionnaire, it would be helpful if you returned the partially completed document.
Please mail your completed questionnaire to us so it arrives no later than March 31, 1997. You may also respond electronically. We will make all responses and other comments we receive available to the public. Copies of this questionnaire are also available on our web page on the Internet (http://www.sec.gov/consumer/cfquestr.htm).
HOW TO MAIL YOUR IDEAS AND SUGGESTIONS TO THE SEC
This form can be mailed to the SEC by sending it to:
Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
You may also respond to this questionnaire via e-mail by following
the instructions on our web page on the Internet (http://www.sec.gov/consumer/cfquestr.htm).
If you do not wish to use this form, you can write a letter directly to the SEC at the above address. Mark your letter "File No. SJ-5-97."
Remember to send your questionnaire in time to arrive by March 31, 1997.
If you have questions about this questionnaire, they may be directed to:
Frank Zarb (202) 942-2900
Amy Trombly (202) 942-2900
Joseph Pascale (202) 942-2900
THANK YOU FOR RESPONDING!
Part A: Please Identify Yourself
1. Please tell us about yourself:
Your Name
Your Title (if any)
Street Address
City
State
Zip
2. Please indicate whether you are submitting this questionnaire as, or on behalf of:
(a) A Shareholder/Investor;
(b) A Company that receives or may receive shareholder proposals;
or
(c) Other .
3. If you are submitting this questionnaire on behalf of a company, firm, or other institution or group, please provide its name. [One response per single company, firm, institution, or group, please].
Part B: Please tell us about your company
(Shareholders: please skip to Part C, below)
4. Is your company subject to the federal proxy rules (i.e., does
it have a class of equity securities registered under Section
12 of the Securities Exchange Act of 1934)?
(a) Yes (b) No
5. How many beneficial shareholders does your company have (if exact information is unavailable, please provide your best estimate)?
Part B: Please tell us about your company, con't.
6. Does your company normally have annual revenues of more than $25,000,000 and public float (the aggregate market value of outstanding securities held by non-affiliates) in excess of $25,000,000?
(a) Yes (b) No
7. On average, how many shareholder proposals does your company receive each year?
8. On average, how many shareholder proposals does your company exclude eachyear, after having obtained the concurrence from the SEC staff and/or a court?
9. On average, how many shareholder proposals does your company include each year that it would have excluded if it had obtained the concurrence of the SEC?
10. What is your company's typical response to receiving shareholder proposals?
(a) Inclined to include all proposals;
(b) Inclined to include some but not all proposals; or
(c) Inclined to exclude as many proposals as possible.
11. If your company excludes proposals, what is the typical and/or most significant reason?
(a) Disagree with substance of proposal(s);
(b) Agree with proposal(s), but believe that proxy materials are
not the correct forum to raise the particular issues;
(c) Believe proposal(s) interfere with management's ability to
make business decisions, even if cast as non-binding recommendations
to the board of directors; or
(d) Other.
Part B: Please tell us about your company, con't.
12. On average, how many hours do your employees spend determining whether to include or exclude a typical shareholder proposal and following SEC procedures in connection with any proposal that the company wishes to exclude (include time spent by outside counsel)?
hours
13. On average, how much money does your company spend each year determining whether to include or exclude shareholder proposals and following SEC procedures in connection with any proposal that the company wishes to exclude (include internal costs as well as any outside legal and other fees)?
$
14. On average, how much does your company spend on printing costs
(plus any
directly related costs, such as additional postage and tabulation
expenses) to include shareholder proposals in your proxy materials?
$
15. Does your company currently maintain a home page or other site on the Internet?
(a) Yes (b) No
16. Can your shareholders communicate with you over the Internet?
(a) Yes (b) No
Part C: Please tell us about yourself as a shareholder
(Companies: please skip to Part D, below)
17. Are you submitting this questionnaire as, or on behalf of:
(a) an individual shareholder;
(b) an institutional shareholder; or
(c) other .
Part C: Please tell us about yourself as a shareholder, con't.
18. If you are submitting this questionnaire on behalf of an institutional shareholder, please indicate whether the shareholder is:
(a) a member of a shareholder advocacy group;
(b) a public pension fund;
(c) a corporate pension fund;
(d) a union pension fund;
(e) a trust;
(f) a mutual fund;
(g) a religious institution;
(h) a group united by a single social cause;
(i) a secular tax exempt foundation or endowment; or
(j) other: .
19. Approximately how many hours do you or your institution spend preparing shareholder proposals each year, including follow-up correspondence with thecompany and/or the SEC staff?
hours
20. On average, how much money do you spend each year preparing shareholder proposals, including follow-up correspondence with the company and/or the SEC staff (include internal costs as well as external costs, such as legal fees)?
$
21. On average, how many shareholder proposals do you submit each year?
22. Do you typically send a proposal to more than one Company?
If so, on average, how many different companies do you submit
shareholder proposals to each year?
Part C: Please tell us about yourself as a shareholder, con't.
23. How often do your proposals result in discussions with the Company?
(a) always;
(b) often;
(c) occasionally; or
(d) never.
24. If your proposals do, at least occasionally, result in discussions with the Company, how often (on average):
A.) Does the Company agree to include your proposal as it was submitted?
(a) always;
(b) often;
(c) occasionally; or
(d) never.
B.) Does the Company agree to include your proposal subject to certain revisions?
(a) always;
(b) often;
(c) occasionally; or
(d) never.
C.) Do you agree to withdraw or defer the proposal?
(a) always;
(b) often;
(c) occasionally; or
(d) never.
25. How many of your proposals do companies typically include each year? How many do they exclude?
typically included; and
typically excluded.
Part C: Please tell us about yourself as a shareholder, con't.
26. What type of your proposals is most commonly included in a company's proxy materials?
(a) corporate governance (e.g., composition of the board of directors,
voting procedures);
(b) social issues (e.g., human rights, advertising for tobacco
products, animal rights);
(c) executive / director compensation;
(d) extraordinary transactions (e.g., mergers, spinoffs);
(e) corporate anti-takeover provisions (e.g., poison pills); and/or
(f) other: .
27. Do you discuss your shareholder proposal activities with other shareholders or groups of shareholders?
(a) Yes (b) No
28. What type of your proposals is most commonly excluded from a company's proxy materials (circle one)?
(a) affirmative action;
(b) workplace practices (e.g., employee-management relations);
(c) other business operations;
(d) foreign operations;
(e) human rights;
(f) abortion;
(g) environmental;
(h) sweatshops;
(i) tobacco-related issues;
(j) general employee compensation;
(k) non-discrimination issues;
(l) dividend policy; and/or
(m) other .
Part C: Please tell us about yourself as a shareholder, con't.
29. Do you have use of a computer with Internet access?
(a) Yes (b) No
30. If so, have you ever had an occasion to communicate with a company or its shareholders via the Internet?
(a) Yes (b) No
31. If it were available, would you use a system where shareholders
could communicate directly with the company and other shareholders
over the Internet?
(a) Yes (b) No
Part D: Suggestions For Reform
(Companies and Shareholders: please complete this section)
32. If it were available, would you prefer a system where shareholders could vote for shareholder proposals over the Internet instead of the current system for placing proposals in the company's proxy statement?
(a) Yes (b) No
33. How satisfied are you with the shareholder proposal process and the corresponding SEC Rule 14a-8?
(a) extremely satisfied;
(b) very satisfied;
(c) satisfied;
(d) unsatisfied;
(e) very unsatisfied; or
(f) extremely unsatisfied.
Part D: Suggestions for Reform, con't.
34. If you are dissatisfied with the current shareholder proposal process, please rank, from most important (#1) to least important (#5) to you, the following potential goals for reforming the system:
to reduce cost/time required;
to simplify the process;
to expand the categories of proposals that companies must include in proxy materials;
to reduce the categories of proposals that companies must include
in their proxy materials; and
to eliminate or reduce the SEC staff's role in deciding which
proposals must be included.
other .
We have received some suggestions on how fundamentally to reform the shareholder proposal system. Listed below are questions based on suggestions we have received.
Company / Shareholder Created System
35. Would you favor allowing each company to create its own shareholder proposal process (that is, for deciding which proposals should be included or excluded),which process would then be approved or disapproved by shareholders, rather than being subject to Rule 14a-8?
(a) Yes (b) No
36. Whether or not you would favor such a system, if a company is permitted to create its own shareholder proposal process, subject to shareholder approval, but does not do so, should the current SEC process apply by default?
(a) Yes (b) No
37. If such an approach were adopted, should the SEC prescribe minimum requirements with which companies and shareholders must comply in devising their own systems (e.g., eligibility criteria, bases for exclusion)?
(a) Yes. Please describe the minimum requirements in the space provided at the end of this survey.
(b) No
Part D: Suggestions for Reform, con't.
38. If such an approach were adopted, should companies be required periodically to resubmit their shareholder proposal procedures to the SEC staff for review (e.g., annually, or biannually)?
(a) Yes (b) No
39. If such an approach were adopted, should companies be required periodically to resubmit their shareholder proposal procedures to shareholders for review (e.g., annually, or biannually)?
(a) Yes (b) No
State-Determined System
40. Rather than authorizing individual companies and their shareholders
to create their own shareholder proposal processes, should the
SEC urge each state to set up its own shareholder proposal rule
that would apply instead of Rule 14a-8?
(a) Yes (b) No
41. If so, and regardless of your answer to question 40 above,
should the SEC maintain a version of the current shareholder proposal
rule that would apply by default when a state does not adopt its
own rule?
(a) Yes (b) No
Numerical (Lottery) System
42. Would you favor an SEC rule that would limit the maximum number of shareholder proposals a company could include in each proxy statement without regard to the proposals' subject matter as long as they are consistent with state and federal law?
(a) Yes (b) No
43. Whether or not you favor such a system, if adopted, should the limit on the number of proposals that a company includes in its proxy statement vary depending on the size of the company or the number of shareholders?
(a) yes --company size;
(b) yes --number of shareholders;
(c) yes --other ; or
(d) no.
Part D: Suggestions for Reform, con't.
44. If the rule limits the number of shareholder proposals that
a company could include statement, what do you think the limit
should be?
45. If the number of proposals submitted exceeds the numerical
limit, how should the company determine which proposals to include?
(a) by lottery;
(b) by date of receipt;
(c) by number of shares held; or
(d) by subject matter.
46. Should certain types of proposals always be included, regardless of the numerical limit? If so, which types (you may circle more than one)?
(a) corporate governance (e.g., the structure of the board of directors, voting procedures);
(b) social issues (e.g., human rights, advertising for tobacco products, animal rights);
(c) proposals submitted by shareholders or shareholder groups representing a certain percentage of the company's shares (e.g., 3%);
(d) executive/director compensation;
(e) extraordinary transactions (e.g., mergers, spinoffs);
(f) corporate takeover provisions (e.g., poison pills);
(g) other ; and/or
(h) None. All proposals should be chosen by lottery regardless of subject matter.
Part D: Suggestions for Reform, con't.
47. Are there certain types of proposals that a company should always be able to exclude from its proxy regardless of any numerical limit? If so, which types (you may circle more than one):
(a) proposals on social issues unrelated to the company's business;
(b) proposals on general business operations of the company (e.g.,
hiring, work rules);
(c) proposals that the company has no power to effectuate;
(d) proposals of a personal nature that will not benefit all shareholders at large;
(e) proposals affecting less than a certain dollar threshold (e.g., earnings, assets); and/or
(f) other.
48. If a numerical cap system were adopted, do you think companies should place shareholder proposals on separate proxy cards and mail them to shareholders with the companies' proxy cards, instead of mixing shareholder proposals and management's proposals together on one card?
(a) Yes --the company should be required to separate shareholders'
proposals from managements' proposals;
(b) Yes --the company should be able to choose whether to separate
shareholders' proposals from managements' proposals; or
(c) No --all proposals should be on one card.
49. In the current system, a proposal may be excluded on its second submission if it failed previously to receive 3% of the vote, on its third submission if it failed previously to receive 6% of the vote, and on its fourth if it failed to receive 10% of the vote. If a numerical limit system were adopted, should these restrictions on resubmission be:
(a) raised to ;
(b) the same;
(c) lowered to ; or
(d) eliminated.
Part D: Suggestions for Reform, con't.
50. If a numerical limit system were adopted, do you believe that the total number of proposals submitted to companies each year would:
(a) decrease;
(b) increase; or
(c) stay the same?
51. How do you think adopting a numerical limit would affect the
quality of shareholder proposals that are included in proxy materials?
(a) improve tremendously;
(b) improve slightly;
(c) not change;
(d) harm slightly; or
(e) harm tremendously.
Maintain the Current System with Revisions
52. Do you believe that shareholders generally understand the current SEC procedures for the submission and content of shareholder proposals?
(a) Yes (b) No
53. Do you believe that the SEC staff's role as an informal "referee" in the process is beneficial?
(a) Yes (b) No
Part D: Suggestions for Reform, con't.
54. Assuming the existing shareholder proposal rule is maintained, which of the following categories of proposals, if any, should always be included in a company's proxy materials (you may circle more than one)?
(a) executive / director compensation;
(b) extraordinary transactions (e.g. mergers, spin-offs);
(c) other business operations;
(c) general hiring practices;
(d) foreign operations;
(e) human rights;
(f) abortion;
(g) environmental;
(h) sweatshops;
(i) tobacco-related issues;
(j) general employee compensation;
(k) non-discrimination issues;
(l) dividend policy;
(m) affirmative action;
(n) other workplace issues; and/or
(o) other .
Part D: Suggestions for Reform, con't.
55. Under the current system, in order to be eligible to submit a proposal, a shareholder must own the lesser of $1,000 in market value of the company's voting securities, or 1% of the company's voting securities, for at least one year.
A.) Should the value of stock held be:
(a) increased to ;
(b) decreased to ;
(c) remain unchanged at the lesser of 1% or $1,000; or
(d) other .
B.) Should the holding period be:
(a) increased to ;
(b) decreased to ;
(c) remain unchanged at one year; or
(d) other .
56. Paragraph (c) of Rule 14a-8 sets forth thirteen bases on which a company may exclude shareholder proposal (see page 2 of this survey). Do you think one or more of these bases should be reformed? If so, which bases do you think are in most need of reform? Please rank, from most important (#1) to least important (#5) the bases you think are in need of reform. You need not fill in all five spaces. Please identify your choices by their subparagraph numbers (e.g., (c)(1)), and indicate whether you believe the reform should make the exclusion "narrower" so that it is harder for a company to exclude a proposal, or "broader" so that it is easier to exclude a proposal:
1. (c)( )
2. (c)( )
3. (c)( )
4. (c)( )
5. (c)( )
Part D: Suggestions for Reform, con't.
57. Under the current system, Rule 14a-8(c)(5) permits a company to exclude a shareholder proposal if it relates to operations that account for less than 5% of the company's assets, net earnings and gross sales, and is not otherwise significantly related to the company's business. Here is a proposed modification to this exclusion:
Exclude shareholder proposals when they relate to less than 1% of the company's assets, earnings, and sales, even if they are significantly related to the company's business (unless the proposal deals with a matter of corporate governance--which means the company may not be permitted to exclude it).
Do you agree with this proposed modification?
(a) Yes (b) No
58. Based on the circumstances surrounding a company's decision to exclude a shareholder proposal, the SEC staff sometimes adjusts its interpretive positions on whether certain categories of proposals may be excluded (e.g., companies may not always exclude shareholder proposals addressing executive compensation based on the ôordinary businessö exclusion). How often have you found yourself in disagreement with a particular interpretive change?
(a) never;
(b) occasionally;
(c) often; or
(d) not affected.
59. Historically, employment-related matters have been considered to be within the sole prerogative of management, and therefore excludable under Rule 14a-8(c)(7). Because the SEC staff was no longer able to draw viable distinctions between such proposals on the one hand, and proposals that raised both employment and broader policy issues (e.g., discrimination) on the other, in a 1992 no-action letter issued to Cracker Barrel Old Country Stores, Inc., the staff announced a different approach. Under this approach, set forth in the Cracker Barrel letter, the fact that an employment-related proposal is tied to social issues would no longer be viewed as removing the proposal from the realm of ordinary business operations, excludable pursuant to Rule 14a-8(c)(7). This position is currently on appeal to the Commission with regard to certain shareholder proposals this year.
Without regard to the outcome of the appeal, do you believe that employment proposals that raise broader policy issues should, or should not be included in the proxy statement?
(a) Yes, they should be included.
(b) No, they should not be included.
Part D: Suggestions for Reform, con't.
60. If you have ever disagreed with the SEC staff's interpretive positions as reflected in its no-action letters under Rule 14a-8, please indicate the positions that you believe should be reconsidered (if none, leave blank):
61. In your opinion, are the SEC staff's no-action positions, as set forth in no-action letters, usually:
(a) biased towards shareholder interests;
(b) biased towards companies' interests; or
(c) unbiased.
62. Do you think the SEC staff's role in the shareholder proposal process should:
(a) be eliminated;
(b) diminish;
(c) increase; or
(d) stay the same.
Part D: Suggestions for Reform, con't.
Other Alternatives
63. Would you favor a system administered by the SEC that required a company to include proposals on one or more subject matters only, so that inclusion of proposals on other subjects would be up to a Company's discretion? If so, what subject matters would a Company be required to include?
(a) corporate governance (e.g., composition of the board of directors,
voting procedures);
(b) social issues (e.g., human rights, advertising for tobacco
products, animal rights);
(c) executive / director compensation;
(d) general employee compensation;
(e) extraordinary transactions (e.g., mergers, spinoffs);
(f) corporate anti-takeover provisions (e.g., poison pills);
(g) workplace practices (e.g., employee-employer relations);
(h) foreign operations;
(i) dividend policy;
(j) other ; and/or
(k) I would not favor such a system.
64. Would you favor a system administered by the SEC that required companies to include only those proposals where the proponent has obtained the endorsement of a certain number of his or her fellow shareholders (regardless of the subject matter)?
(a) Yes (b) No
65. Would you favor a system in which nearly all proposals submitted to a company would be included and voted on by shareholders, without a numerical limit, but where the proposals would be described in a document separate from the company's proxy materials and included on a separate proxy card, although mailed along with the company's materials?
(a) Yes (b) No.
Part D: Suggestions for Reform, con't.
66. If the current system is not replaced by one of the alternatives referenced above, would you favor:
(a) The existing system, without reform;
(b) The existing system, but with other reforms. Please briefly describe such other reforms in the space provided at the end of this questionnaire; or
(c) Some other alternative. Please briefly describe the system
you would favor in the space provided at the end of the questionnaire.
ADDITIONAL COMMENTS
Please provide us in the space below with any additional comments you may have on the shareholder proposal process (if your comments relate to a specific question, please indicate the number):
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