Stakeholders Criticize SEC on Decisions to Allow Companies to Exclude Proposals on Special Meetings, Lobbying Disclosures
February 10, 2018
The Securities and Exchange Commission’s adjudication of No-Action Letter requests came under fire last week with the Council of Institutional Investors sending a letter that criticized the agency for what it deemed a roll-back of shareholder rights. In its letter
to the SEC, CII General Counsel Jeff Mahoney took issue with a recent decision by the SEC to allow a company to exclude a proposal by gadfly John Chevedden that would set the shareholder support threshold to trigger the “Right to Call Special Meeting” at 10%. The SEC reasoned that the proposal directly conflicted with a proposal from management seeking shareholder ratification of the company’s existing 25% support threshold. According to CII, the SEC’s decision represents a departure from past decisions made by the agency.
2015, the SEC under former Chair Mary Jo White surprised many observers by reversing a staff decision to allow Whole Foods to exclude a proxy access shareholder proposal that conflicted with a management proposal by setting lower ownership requirements than the company’s proposal. Chair White directed a review of the policy that led to the publication
of a SEC Staff Legal Bulletin which broadly stated that so long as a “reasonable shareholder could vote favorably on both proposals”, a No-Action request would not be granted on the basis that proposals were in conflict. The Bulletin provides an example of a shareholder proxy access proposal which would allow a group of shareholders owning 3% of the company’s shares for three years to nominate 20% of the board as not conflicting with a management proposal which would allow a shareholder with owning 5% for at least five years to nominate 10% of the board. In the AES case at issue in CII’s letter, the SEC Staff ruled that a shareholder could not logically vote for both the 10% ownership threshold to call a special meeting in the shareholder’s proposal and the 25% threshold in management’s proposal and thus permitted the Chevedden proposal to be excluded.
Further Criticism of SEC No-Action Evaluation.In a separate article appearing first in Responsible Investor and later on the Harvard
Law School Forum, columnist Paul Hodgson decries the
“full-fledged assault” by companies on shareholder proposals. At issue in Mr. Hodgson’s letter are several No-Action requests – not decisions – which seek to exclude shareholder proposals seeking Reports on Lobbying Expenditures. The No-Action requests cite the company’s board discussion of the proposal as evidence for the proposal’s exclusion. In November, the SEC issued Staff Legal Bulletin 141 in which the SEC Staff stated that the Staff would evaluate the “specific processes employed by the [company’s] board and would exclude those proposals supported by boards conclusions [to exclude or not to exclude a proposal] that are well-informed and well-reasoned”. The No-Action requests at issue in Mr. Hodgson’s piece are simply attempting to satisfy this element of the SEC’s standard of review. The article, however, is a clear attempt at trying to prevent the SEC from using the Board discussion as an additional basis for the exclusion.