“Directly Conflicts” Clarified by Staff Legal Bulletin

Never underestimate the ability of SEC staff to parse the rules in a creative way. Staff Legal Bulletin No. 14H (CF) does not adhere completely to original intent, which staff determined was “to prevent shareholders from using Rule 14a-8 to circumvent the proxy rules governing solicitations.” However, it gets us where we need to be in defining the meaning of “directly conflicts” with regard to Rule 14a-8 exclusions.

The guidance still provides some wiggle room for companies to game the system by proposing the opposite. For example, if a shareholder proposes proxy access a company could invoke (i)(9) by countering with a proposal to deny any form of proxy access. However, in most cases that tactic will backfire. Whole Foods became something of a pariah last year when they put up a counter proxy access proposal to mine with thresholds that could never be met. (see Appeal of No-Action on Proxy Access at Whole Foods Markets (WFM)

The current rule reads as follows:

(9) Conflicts with company’s proposal: If the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting;

The decision specified in Staff Legal Bulletin No. 14H (CF) is to allow exclusion under (i)(9) “if a reasonable shareholder could not logically vote in favor of both proposals.” That should curtail most abuses. Therefore we can expect use of this exclusion to be rare going forward.

All shareowners owe a debt of gratitude to CII and its members, as well as many in the SRI, union and consulting communities, for joining in actions that led to curtailing prior misinterpretation of the rule. See comments leading to Staff Legal Bulletin No. 14H (CF) at Comments on Staff Review of Conflicting Shareholder Proposals.

See also:

• Shareholder Proposals: New Staff Legal Bulletin Bids Farewell to the Proxy Access (i)(9) Flap
• Shareholders Notch Gain in SEC’s New Ballot Guidelines
• Weil Alert: SEC Disclosure and Corporate Governance
• Sidley: SEC Issues New Guidance on Excludability of Shareholder Proposals
• Skadden: SEC Staff Issues New Shareholder Proposals Guidance