Tag Archives | no-action letter

AES “Games” SEC: CII Seeks Correction

CII sent an important letter to the SEC on a recent no-action issued to the AES Corporation (AES) (not yet posted). A similar no-action had been granted in 2016 to Illumina (ILMN) on a proposal I (James McRitchie) had submitted. ISS referenced both. From the facts regarding AES, it appears John Chevedden submitted a proposal to lower the required threshold for shareholder to call a special meeting. The current standard is 25%. Chevedden’s proposal requested 10%. The SEC’s no-action letter gave the following rationale: Continue Reading →

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SEC Withdraws No-Action: Rule 14a-8(i)(9) Suspended

Seal of SEC

The SEC has essentially suspended Rule 14a-8(i)(9) Conflicts with company’s proposal. Shareowners at Whole Foods Market and at many other companies have scored a huge victory.

Last Friday the SEC issued the following:

Statement from Chair White Directing Staff to Review Commission Rule for Excluding Conflicting Proxy Proposals

Chair Mary Jo White

Jan. 16, 2015 The Commission’s proxy rules enable shareholders to submit proposals for inclusion in a company’s proxy materials for a vote at a shareholder meeting, subject to certain procedural and substantive exclusions.  One of the exclusions, Exchange Act Rule 14a-8(i)(9), allows a company to exclude a shareholder proposal that “directly conflicts” with a management proposal.  Due to questions that have arisen about the proper scope and application of Rule 14a-8(i)(9), I have directed the staff to review the rule and report to the Commission on its review.

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Rejected No-Action Request Clarifies Required Ownership Evidence

As reported last week by Glyn Holton in the Investor Suffrage News, available through subscription, investors won another round with the SEC’s denial of a no-action letter to News Corp. From that News:

You may recall last spring’s Apache vs. Chevedden lawsuit. It was a classic SLAPP (strategic lawsuit against public participation) suit, with Apache Corp trying to squeeze shareowner activist John Chevedden financially. The crux of the case was Apache trying to reinterpret poorly-written SEC Rule 14a-8(b)(2), which governs how shareowners must document their ownership of a corporation’s shares for the purpose of submitting a shareowner proposal. Based on an amicus curiae brief submitted by the USPX, the judge flatly rejected Apache’s reinterpretation of the rule. But she found a technicality on which to allow Apache to exclude Chevedden’s proposal from their proxy materials for 2010. That narrow decision appears to be based on factually incorrect information, but that hasn’t stopped three corporations—Union Pacific, Devon Energy and News Corp—from trying to piggyback off the flawed ruling. Since the Apache vs. Chevedden decision, all three have submitted no-action requests to the SEC to allow them to exclude proposals by Chevedden (or those he works closely with). The USPX has helped Chevedden draft responses to each. All three requests have been rejected by the SEC. This is fantastic news for shareowners. Attempts to reinterpret Rule 14a-8(b)(2), and thereby make it more difficult to submit shareowner proposals, have been defeated.

The third of those no-action decisions was just released today. It is important because the first two were decided on technicalities. With the News Corp request, there were no technicalities with which to dismiss the request. SEC staff had to decide in favor of News Corp or in favor of Kenneth Steiner based on the merits. It took them two months—longer than any other Rule 14a-8 no-action request so far this year—but they today decided in favor of Steiner (and Chevedden). Furthermore, they have indicated they will release a fill-in-the-blanks template letter for banks or brokers to confirm share ownership in the future. That should finally put an end to efforts to reinterpret Rule 14a-8(b)(2).

We are delighted with the SEC’s denial of News Corp’s request. Since the SEC’s announcement of their refusal to grant a no-action letter on Steiner’s proposal, News Corp revamped their performance pay plans. (see News Corp gets the performance pay bug, The Corporate Library, 8/4/10)  As Holton indicated above, this is the clearest evidence to date that the SEC rejects attempts to reinterpret Rule 14a-8(b)(2) to require shareowners to obtain a letter evidencing beneficial ownership from the “record holder,” which in the case of stocks held in “street name” is Cede & Co., an agent the Depository Trust Corporation, the central clearinghouse.

We look forward to the forthcoming fill-in-the-blanks template letter for banks or brokers within the Staff Legal Bulletin that I expect will come from Meredith Cross, Director, Division of Corporate Finance at the SEC. In fact, we hope to provide the SEC with some advice. Meanwhile, those of you who subscribe to theCorporateCounsel.net can find out more at Corp Fin to Issue Rule 14a-8 Staff Legal Bulletin Before ’11 Season, 8/5/10.

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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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No-Action Letters in Question

Robert A.G. Monks submitted a couple of shareowner proposals asking for chair and CEO positions to be split. The companies appealed to the SEC and were granted no-action letters… the SEC would take no action if the companies left the proposals off their proxies. Now Monks says the SEC should get out of the business of reviewing proposal since “its bureaucracy has often been an obstacle, rather than a help, to those seeking better corporate practices.”

The SEC should use its scarce resources for other purposes. According to Monks,

Corporations have lawyers who are quite capable of evaluating whether proposals are required to be included in their proxy materials under SEC rules. If the corporation’s lawyers find a proposal not legitimate, the corporation need not include it. And if the corporation’s lawyers are not certain, then there is little harm in having the proposal included. (On shareholder proposals, SEC should exit the no-action letter biz, P&I, 5/11/10)

That may be true, but many managers of corporations want to deny shareowners a voice at any turn. Apache has been among the most vocal in this category. Recently, we reported that they ended their annual meeting abruptly, without taking any questions from shareholders. (Apache to Shareowners: Give Us Your Money and Shut Up) Apache’s CEO G. Steven Farris has publicly declared in a comment letter to the SEC on proxy access that:

Non-binding proposals should not be permitted at all. They have no legal standing under the corporate laws of Delaware and other slates, are an inefficient and ineffective method of communication between shareholders and companies, and distract attention from the genuine business issues presented for shareholder votes at shareholder meetings. The Commission should eliminate the federally created right of share holders to make non-binding proposals.

I very rarely disagree with Bob Monks but I must in this one instance. While I totally understand why he sees the no-action letter process as problematic, given the startling result his resolutions obtained, doing away with the process would hurt shareowners in the long run. Many companies, such as Apache, would routinely refuse to include resolutions in the company proxy. They view the proxy as management’s proxy, not as the company’s or shareowner’s proxy. Shareowners would have to go to court to protect their rights. While shareowners must front court expenses from their own pockets, corporate management simply taps the corporate treasury. Essentially, shareowners end up paying twice.

In fact, Apache took John Chevedden to court, claiming he had no right to submit a resolution, since his name didn’t appear on the company’s list of registered owners. (Most retail shareowners hold their shares through street name registration. Their shares are held in trust by the Depository Trust Company’s nominee, Cede & Co.) In Apache v Chevedden, Apache won the right to keep Chevedden’s very simple resolution off the proxy because the judge didn’t fully understand the stock ownership structure and how it meshes with SEC rules. The SEC has since received at least two, maybe three, no action requests based on similar arguments used in that case and has flatly rejected them. (Apache v. Chevedden: a Non-Starter)

Sure, SEC staff sometimes get it wrong, as they obviously did in the case of the resolutions cited by Monks. However, doing away with the process would send many cases through an expensive process in the courts, which know little of arcane SEC rules and are already clogged with more than they can handle. Monks should appeal his cases directly to the Commission.

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