SEC Permits Exclusion of Most Common Proxy Access Proposal

James Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. This post is based on a Sullivan & Cromwell publication. Work from the Program on Corporate Governance about shareholder voting includes Private Ordering and the Proxy Access Debate by Bebchuk and Hirst; more posts about proxy access are available here.

Recently, the staff of the U.S. Securities and Exchange Commission has issued a number of no-action letters responding to company requests to exclude shareholder proxy access proposals from the proxy statement for the company’s 2012 annual meeting. The SEC staff permitted the exclusion of the most common form, a precatory 1% or 100-holder proposal based on a model issued by the United States Proxy Exchange, but did not allow exclusion of others, including the Norges Bank binding 1% proposal. These no-action letters serve as a reminder that, although changes to SEC Rule 14a-8 that took effect last year permit shareholders to propose the adoption of proxy access provisions, these proxy access proposals will not be afforded special treatment under the SEC rules and will continue to be subject to exclusion under the traditional bases set forth in Rule 14a-8.

As a result of the SEC staff’s concurrence as to the excludability of the most common form of proposal, there will be a more limited number of proxy access proposals coming to a vote in the 2012 proxy season. The terms of proxy access proposals in future years are likely to depend, to a large extent, on the level of shareholder support received by this limited group.

The SEC staff’s recent letters relate to three forms of proposals and reached different results depending on the stated grounds for exclusion:

Precatory 1%/100-holder proposal. The most common form of proxy access proposal this year was based on a model issued by the United States Proxy Exchange, a shareholder advocacy group. This precatory proposal requested a bylaw amendment permitting holders of 1% of the outstanding stock for a two-year period, or alternatively 100 holders who satisfy the $2,000/one-year requirement of Rule 14a-8, to include director nominees in the company’s proxy statement. The SEC staff agreed with the companies that this proposal could be excluded on two separate bases:

  • The proposal constituted multiple proposals in violation of Rule 14a-8(c), due to the inclusion of a provision stating that an election of proxy access nominees would not be a “change in control” of the issuer. See letters to Bank of America, Goldman Sachs and Textron.
  • The proposal was vague and indefinite under Rule 14a-8(i)(3) because it referred to the eligibility requirements of Rule 14a-8 without explaining what these requirements were. See letters to Chiquita Brands, MEMC Electronic Materials and Sprint Nextel.

Norges Bank binding 1% proposal. Companies that received the binding proxy access proposal from Norges Bank Investment Management (applicable to 1% shareholders with a one-year holding period) argued that it was excludable as vague and indefinite because an internet address referenced in the proponent’s supporting statement did not lead to an active webpage. The SEC staff disagreed, noting that the proponent provided the companies with the information that would be on the webpage upon filing of the proxy statement. See letters to Charles Schwab, Wells Fargo and Western Union. [1]

Binding 2% proposal. KSW, Inc. argued that it should be permitted to exclude a binding 2%/one-year proposal submitted by the Furlong Fund LLC because the proposal was “substantially implemented” under Rule 14a-8(i)(10) by the company’s adoption of a bylaw granting proxy access to 5% shareholders. The SEC staff disagreed, noting the differences between the proposal and the bylaw adopted by the company. [2]

The SEC staff’s responses to no-action requests under Rule 14a-8 are available on the SEC website at For more information on the Rule 14a-8 amendment allowing proxy access proposals (which took effect in September 2011 following the judicial vacating of the SEC’s mandatory proxy access rule), see our Memorandum, dated September 7, 2011, entitled “SEC to Allow Shareholders to Submit Proxy Access Proposals for 2012 Season.”


[1] Western Union had initially advanced an alternative argument that the shareholder proposal was excludable under Rule 14a-8(i)(9) as conflicting with the company’s own proxy access proposal, which it intended to put to a shareholder vote at the 2012 annual meeting. The company withdrew this argument, however, when it decided that it would not, in fact, advance its own proxy access proposal this year.
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[2] Under existing SEC staff precedents, if a company is actually putting its own proxy access provision to a shareholder vote at the upcoming annual meeting (which was not the case for KSW), then the company should be able to exclude a shareholder proxy access proposal as “conflicting” with the company’s proposal under Rule 14a-8(i)(9), notwithstanding differences between the company proposal and the shareholder proposal.
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