Preliminary No-action Lessons from 2010

DavisPolk issued a client memorandum on April 15, 2010 that just come to my attention, 2010 Proxy Season Early Trends: More Proposals, and More Exclusions. (Hat tip to Timothy Smith of Walden Asset Management). The memo notes:

Last year’s Staff Legal Bulletin 14E restricted the grounds on which proposals could be excluded, which led some to predict the virtual demise of the 14a-8 no-action letter request. But based on the returns so far it appears that this demise has been exaggerated. Properly framed 14a-8 no-action letters can continue to be effective for excluding shareholder proposals.

Companies challenged 249 proposals (31% of the total). Not counting proposals later withdrawn by the proponents, the SEC staff agreed with companies 68% of the time, largely consistent with prior years. Most common challenges in descending order were: ordinary business (22%), failed ownership threshold (19%), conflicting (15%), lacked power or vague (13%), substantial implementation (13%), and other procedural deficiencies (18%).

Companies are winning on “conflicting” proposals by proposing charter or bylaw amendments allowing shareowners to call special meetings, setting the minimum percentage at 25% or even as high as 40%, as opposed to the 10% thresholds recommended by shareowner proposals. DavisPolk observes, “this may be a short-term tactic, but it appears to be successful for now.” Eventually, the SEC should recognize there is a big difference between 40% and 10% being able to call a special meeting. Shareowners will continue to argue these aren’t substantially the same and eventually the SEC may come tor their senses.

After a proponent won reconsideration of a staff decision involving Tyson Foods on December 15, 2009, companies made 35 requests for reconsideration. All were rejected but as DavisPolk notes, while reconsideration my be a low-yield tactic, it is also low cost. More paperwork for everyone.

The memo also discusses the decision in Apache v Chevedden, noting that although the court allowed Apache to exclude his proposal, “since the court case was handed down, the SEC has stuck to its position, denying exclusion when Mr. Chevedden again only provided a letter from RTS.” Apache would have likely lost a no-action request from the SEC but DavisPolk concludes, “it illustrates that procedural deficiencies continue to provide sufficient grounds for exclusion in many situations.”

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