Companies that have adopted proxy access and those that are considering whether, and on what terms, to adopt proxy access now have greater clarity on when they may exclude proxy access proposals submitted by shareholders. The Staff of the SEC Division of Corporation Finance has granted no-action relief to 15 companies under SEC Rule 14a-8(i)(10) on the basis that the companies had already “substantially implemented” the shareholder proposal.1 These no-action letters suggest that the Staff will grant relief even when the company’s bylaw deviates from the shareholder proposal in one or both of the following respects:
- the company’s bylaw limits the number of shareholders permitted to aggregate (e.g., no more than 20 shareholders), while the shareholder proposal expressly requires “unrestricted aggregation”2; and
- the company’s bylaw limits the maximum number of proxy access candidates to 20% or 25% of the board of directors (rounding down) without also setting a minimum number of access candidates that the company must include, while the shareholder proposal expressly requires that the company include access candidates representing the greater of a percentage of the board or a minimum number (e.g., the greater of 25% of the board or 2).
The Staff did not grant no-action relief to three companies whose bylaw provided for an ownership threshold of 5% where the shareholder proposal sought a threshold of 3%.3
While we anticipate that companies will continue to face pressure from some shareholder proponents and ISS with respect to other granular issues, including those have been identified by ISS as “problematic,” it appears that the proxy access formulation adopted by and large during the 2015 season -- 3% ownership for a 3-year holding period, with a 20 shareholder aggregation limit, and a cap of 20% of the board -- will continue to dominate the proxy access landscape. In our recent Alerts of October 21, 2015, December 21, 2015 and January 26, 2016, we provide a strategic roadmap to help companies and their boards consider whether and, if so, on what terms to adopt proxy access, including an analysis of access bylaws adopted and a discussion of the provisions considered by ISS to be “problematic.”