On September 27, the staff (Staff) of the Securities and Exchange Commission’s Division of Corporation Finance issued three no-action letters relating to proxy access proposals. In two of the no-action letters, the Staff stated that it would not recommend enforcement action if the company seeking no action relief omitted proposals to adopt proxy access bylaws in reliance upon Rule 14a-8(i)(10) under the Securities Exchange Act of 1934, where the company adopted “standard” proxy access bylaws. In the third no-action letter, however, the Staff was unable to concur with a company’s view that a proposal to amend existing proxy access bylaw provisions could be excluded from the company’s proxy statement in reliance upon Rule 14a-8(i)(10).
Rule 14a-8(i)(10) allows a company to exclude a shareholder proposal from its proxy statement if the company has “substantially implemented” the proposal. Applying Rule 14a-8(i)(10), the Staff has permitted companies to exclude proposals where the applicable company’s policies, practices and procedures compared favorably with the guidelines of the proposal. The Staff also has indicated that Rule 14a-8(i)(10) does not require a company to implement the action requested in a proposal exactly as proposed, so long as the company action satisfies the “essential objective” of the proposal.
Consistent with these principles (and several no-action letters issued in February, discussed in the February 19 edition of Corporate & Financial Weekly Digest), the September 27 no-action letters clarify that a company’s own proxy access bylaw may “substantially implement” a proposal to adopt proxy access bylaw provisions, despite the fact that the proposal deviates in some respects from the provision adopted by the company, even where the company’s bylaw excludes various ancillary terms specifically highlighted in the proposal as “essential elements for substantial implementation.” For instance, the company bylaws that the Staff determined to have substantially implemented the proposals at issue in the September 27 no-action letters: (1) limited the number of shareholders whose holdings could be aggregated to 20 shareholders (in contrast to the proposal, which did not restrict the number of shareholders that could form a group for such purposes); (2) limited proponents access to 20 percent of the board seats (in contrast to the proposal, which provided for access to 25 percent of the board); and (3) in one instance, imposed a two-year restriction for re-nomination of candidates who fail to receive the requisite percentage of votes (instead of no restriction on re-nominations, as proposed).
In contrast (and consistent with a no-action letter issued to H&R Block in July 2016), a proposal to amend specific aspects of an existing proxy access bylaw could not be excluded under Rule 14a-8(i)(10) on the same grounds. These letters suggest that a company could not exclude a proposal to amend even a “market” proxy access bylaw without taking some responsive action. At least two other companies are awaiting responses from the Staff regarding requests for similar no action relief.