Notes From SEC's 14a-8 Stakeholder Meeting

Last week I attended an SEC meeting with “key stakeholders in the shareholder proposal process to engage in an open and productive dialogue” about the staff’s involvement in the process. (my emphasis) From the invitation:

You are one of the representatives from public companies, law firms, public pension funds, union pension funds, religious proponents and otherinstitutional investor proponents that we would like to invite to attend the meeting… Topics to be discussed include proof of ownership and notices of defect, and we also welcome suggestions for other agenda items. (my emphasis)
Of course, I was delighted to be invited. Yet, as I indicated in a previous post, If I Were on the SEC’s Investor Advisory Committee: Recommendations to Help Retail Investors, didn’t understand why the emphasis  on institutional investors, given that individual retail investors are the largest category of proposal proponents. See the table below from John Laide at (modified slightly to fit).
Top Sponsors of Shareholder Proxy Proposals
ProponentRank#ProposalsRank #Proposals
Chevedden Family170261
Kenneth Steiner236729
New York City Retirement Systems330353
Gerald R. Armstrong427166
Evelyn Y. Davis525928
Nathan Cummings Foundation8181412
William Steiner818434
New York State Common Retirement Fund1015317
United Brotherhood of Carpenters and Joiners of America10151020
Proponent TypeRank# ProposalsRank# Proposals
Religious Groups21942223
Labor Union31303161
Public Pension Fund4964116
Investment Adviser568576
Other Stake Holders/Activist Groups659660
Other Institutions726721
Hedge Fund Company83811

Sorry, I didn’t take much in the way of notes and am writing this mostly from memory almost a week later. During the meeting I do remember raising the issue that the process to obtain proof of ownership from retail investors should be less onerous. Staff Legal Bulletin No. 14F (CF) didn’t seem to address a real concern. Had introducing brokers provided false evidence of ownership letters for retail investors holding shares in street name? Instead of coming out with a new SLB, wouldn’t it have been more effective to bring such incidents to the attention of prosecutors?

There weren’t any incidents of brokers offering fraudulent letters evidencing ownership, so my request fell on deaf ears. I noted the SEC had created new obligations for shareowners but those who we are newly dependent on for writing letters (clearing banks) have no legal responsibility to provide the letters. Staff suggested that shareowners should inform SEC staff of any difficulties in obtaining the necessary letters.

They will be examining the SLB for possible tweaks but wouldn’t say if another revision is likely this year. One issue raise during discussion was the fact that the proposal and evidence of ownership are due at the same time. Shareowners objected that a day or two shouldn’t matter. One was the subject of a no-action letter because the postage date was later than the date on their letter. How about within 48 hours?  Another issue raised was difficulty in appointing someone to attend a shareowner’s meeting. These appeared to be mostly around State law issues but staff said they would investigate.

Staff pointed out that in December is will be 70 years since the adoption of 14a-8. For $10 and shipping, those interested might want to purchase and read The Iconic Cases in Corporate Law (American Casebooks). This year, there were 322 requests to exclude proposals (up 5% from last year). The SEC had 19 attorneys working the no-action process and skipped a step in their internal review process with no apparent ill effects.  The biggest change was the use of e-mail, instead of hard-copy. This change seems to have been declared a winner on all fronts.

There was some discussion of hot topics, although I don’t remember what was highlighted other than executive compensation, political contributions/lobbying, special meetings, auditor neutrality, and mandatory arbitration. Proxy access was the highest profile. Net neutrality was a new issue. See 2012 Proxy Season Review.

There was also some discussion about what makes an issue acceptable for a proposal… rising to a high level of public debate. One such area of dispute this year was corporate taxes.  To some, an aggressive tax stance feels like ordinary business. How do you avoid micro managing? SEC staff responded that it hinges around the level of public debate. Key was the debate is not around a “social” but “policy” issue. It must be a significant policy issue to get around the “ordinary business” exemption. The burden of proof in no-action requests is on the company.

Use of websites. Some discussion about when content has to be disclosed and links within a referenced website. See SLB 14. Websites can be excluded if they contain false information. The SEC wants the proposal to describe everything necessary for an informed vote without going to a website. They would deem a proposal “vague” if shareowners were required to go to another place to know what they are voting on. The proposal must be described “within the four corners” of the proposal. Some on the call said proponents should be required to provide content of website at the same time they submit proposal. Discussion on this topic was around the proxy access proposals submitted by Norges Bank where companies were denied relief. Some on the call argued that provide the text of the link at same time as the text of the proposal would be reasonable. “Here it is, it will go live when the proxy statement goes out.” From there perspective, the link can’t be constantly changing.

Some cases were raised where companies haven’t provided their response to the proponent within the required 30 day timeframe. How to resolve? Remedy? Let SEC know via E-mail, hotline, web intake. Giving you extra time at the meeting doesn’t remedy. Others on the call said they would like to see a 500 word limitation for opposition statements.

Novel or highly complex proposals, are they kicked up to the Commission? Appeal to Commission – that’s when that standard is applied. Requests for reconsideration – if there is a new argument that clarifies something. They want to be consistent in their decisions. SEC wants to be consistent in their decisions. So, arguments made by all apply to each proposal by type. That provides a disincentive to do the work up front, by allowing some to free-ride on the work of others. A byproduct of transparency and quick posting of decisions is finding out which are the winning arguments. SEC upped the size of e-mail it can accept, so that should no longer be a problem.  I’ll try to take better notes next year, if I’m invited back again.

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