New Standards For Documenting Eligibility to Submit Shareowner Proposals

Today, the United States Proxy Exchange issued standards for documenting eligibility to submit shareowner proposals.

Submitting shareowner proposals is a primary means by which shareowners influence the corporations they own. The process is governed by SEC Rule 14a-8. One provision of that rule—Rule 14a-8(b)(2)—specifies how sharewners prove they own shares in a corporation for the purpose of submitting a proposal.

In recent years, executives at a number of corporations have attempted to exploit ambiguity in that provision to reject proponents’ documentation of eligibility. These efforts have included multiple no-action requests of the SEC and the frivolous Apache vs. Chevedden lawsuit. Both the SEC staff and the Federal District Court in Houston have mostly rejected these efforts.

The controversy has raised concerns at securities intermediaries, who have approached the United States Proxy Exchange (USPX) for guidance on what constitutes acceptable documentation of a client’s eligibility to file a proposal under Rule 14a-8. In the Summer of 2010, the USPX started work preparing recommended standards to meet this need. They suspended that work upon learning the SEC planned to issue a staff legal bulletin on the same topic. Instead, they sent the Commission a detailed letter summarizing their conclusions.

With many demands on their staff, the SEC was unable to complete the staff legal bulletin by November 2010. That is when many corporations had a deadline for submitting proposals for 2011. Accordingly, the USPX is releasing the standards as an interim solution until the Commission is able to release a staff legal bulletin.

The centerpiece of the standards is a template letter for use by securities intermediaries to use for documenting their clients’ eligibility to file a proposal under Rule 14a-8. This was developed based on a careful review of relevant no-action decisions, staff legal bulletins, and the Apache vs. Chevedden lawsuit. It also reflects informal discussions with SEC staff as well as USPX members’ direct experience filing many shareowner proposals.

The USPX is releasing the standards in a full length version, which includes notes, and in a single-page summary version, which will be convenient for shareowners to e-mail or fax to their bank or broker. Both versions can be accessed via the USPX website.

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One Response to New Standards For Documenting Eligibility to Submit Shareowner Proposals

  1. James McRitchie 11/11/2010 at 2:28 pm #

    USPX provides a great service here. These “standards” are much much more stringent than what appears to be required by SEC regulations. However, if you follow their template I think you’ll have a rock solid defense against any attempt by issuers to seek a no-action letter based on failure to properly document ownership.

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