We all know the drill. Shareowners submit their proposals to corporations for various governance and social concerns. Companies hire lawyers to file no-action requests with the SEC. If the SEC grants their request, they won’t take any action against the company if it does not include the shareowner’s proposal in their proxy. But what if a company just ignores the law? Will the SEC Enforce Rule 14a-8?
SEC Rule 14a-8(g) asks, “Who has the burden of persuading the Commission or its staff that my proposal can be excluded?” That same subdivision answers, “Except as otherwise noted, the burden is on the company to demonstrate that it is entitled to exclude a proposal.”
Subdivision (j) asks, “What procedures must the company follow if it intends to exclude my proposal?” The response is as follows:
- If the company intends to exclude a proposal from its proxy materials, it must file its reasons with the Commission no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the Commission. The company must simultaneously provide you with a copy of its submission. The Commission staff may permit the company to make its submission later than 80 days before the company files its definitive proxy statement and form of proxy, if the company demonstrates good cause for missing the deadline.
- The company must file six paper copies of the following
- The proposal;
- An explanation of why the company believes that it may exclude the proposal, which should, if possible, refer to the most recent applicable authority, such as prior Division letters issued under the rule; and
- A supporting opinion of counsel when such reasons are based on matters of state or foreign law.
And what if the company just decides to ignore SEC regulations by not following subdivision (j)? On December 29, 2010, Apache sent a letter to the SEC telling them they would essentially thumb their nose at the SEC process. Instead of requesting a no-action letter, they simply indicated they would not be including a shareowner proposal. To date, the SEC has taken no action.
Here is what ISS has had to say about the process:
In an unusual move, Apache is not asking the SEC staff to issue a no-action letter that supports the company’s decision; Apache is simply informing the agency that it intends to omit the proposal. A few other issuers have taken this approach in past proxy seasons when they have been confident that they have a strong legal basis to exclude a shareholder resolution, SEC observers say.
The SEC staff is not required to respond to Apache’s notice, but it may do so. If the SEC does express its view on Apache’s arguments, there could be broader implications for similar proof-of-ownership arguments raised in no-action requests by other issuers.
Apache has not yet filed its 2011 definitive proxy. Since 1994 the latest that Apache has ever filed was March 31. It seems like one party may be waiting for another to blink. To me, it seems like a dangerous game of chicken. We’ve all heard of “too big to fail.” Recently, WalMart seems to be arguing they are too big to sue. Is Apache too big to bother with SEC rules?
The question I’d like to see all shareowners raise is one raised by Glyn Holton of the United States Proxy Exchange, Will the SEC Enforce Rule 14a-8? The rights of all shareowners appear to hang in the balance.