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Publications | October 27, 2015
2 minute read

New SEC Guidance on Excluding Shareholder Proposals Under Rule 14a-8

In the heart of the 2015 proxy season, to the surprise of many, the SEC abruptly indicated that it would express no views on the application of the "conflicting proposal" basis for exclusion under Rule 14a-8(i)(9). This caused confusion among public companies and shareholders and led to many companies including arguably conflicting management and shareholder proposals in their proxy statements. In a Staff Legal Bulletin issued on October 22, 2015, the SEC clarified its view as to when a company may exclude a shareholder proposal that conflicts with a management proposal from its proxy statement under Rule 14a-8(i)(9). 

Rule 14a-8(i)(9) permits a company to exclude a shareholder proposal from its proxy statement if that proposal "directly conflicts" with a management proposal. In the Bulletin, the SEC narrowed its view of the application of this exclusion, stating a direct conflict will now exist only "if a reasonable shareholder could not logically vote in favor of both proposals." Unless "a vote for one proposal is tantamount to a vote against the other proposal," there is no basis to exclude the shareholder proposal.  Proposals that seek similar objectives through different (and even inconsistent) means will not be viewed as "directly conflicting." 

The Bulletin provides examples of when a shareholder proposal would be excludable, including:

  • A shareholder proposal that asks shareholders to vote against a merger where the company seeks shareholder approval of the merger; and 
  • A shareholder proposal that asks shareholders to vote for the separation of the company’s chairman and CEO where the company seeks shareholder approval of a bylaw provision requiring the CEO to be the chair at all times.

The Bulletin also provides examples of when a shareholder proposal would not be excludable because a shareholder could logically vote for both proposals, including:

  • A shareholder "proxy access" proposal permitting shareholders holding at least 3% of the company's common stock for at least 3 years to nominate up to 20% of the company's directors where the company seeks approval of a 5% - 5 year - 10% proxy access proposal; and
  • A shareholder proposal asking the compensation committee to implement a policy that equity awards would have no less than four-year annual vesting where the company seeks approval of an equity incentive plan that gives the compensation committee discretion to set the vesting provisions for equity awards. 

As we speed toward the 2016 proxy season, public companies should be aware of this development when considering shareholder proposals. If you have any questions, please contact Charlie Goode (616.752.2176; cgoode@wnj.com), Corinne Sprague (616.752.2756; csprague@wnj.com) or any member of the securities law practice group of Warner.