On January 16th, SEC Chair Mary Jo White announced she has asked the SEC staff to review Securities Exchange Act Rule 14a-8(i)(9), which permits the exclusion of a shareholder proposal from a company’s proxy if that proposal "directly conflicts" with a management proposal. As a result of that request, the Division of Corporation Finance announced it will not express any views during this proxy season concerning the application of Rule 14a-8(i)(9). SEC Statement.
That surprising announcement, which one blog post characterized as a “punt,” followed the Corporation Finance Division’s December 1, 2014 no-action letter to Whole Foods Markets, which sought to exclude from its proxy statement a shareholder proposal on the adoption of a corporate bylaw that would give shareholders who own at least 3 percent of the company’s stock for at least three years the right to nominate directors. In its no-action letter, the Division allowed Whole Foods to exclude the proposal under Rule 14a-8(i)(9) because the company was submitting its own proposal which would permit board nominations by those owning 9 percent of its stock for five years.
Three days before Chair White asked the staff to review Rule 14a-8(i)(9), the author of the Whole Foods shareholder access proposal blogged about it for the Harvard Law School Forum on Corporate Governance and Financial Regulation. View the blog post here.
In his blog, James McRitchie included the appeal he submitted to the SEC in response to the no-action letter. The appeal recounted the history of Rule 14a-8(i)(9) and contended that: “The staff’s position effectively denies shareholders the right to vote on competing proposals involving similar or related topics solely because the proposals contain different terms or thresholds. The interpretation effectively limits shareholders to consideration of proposals sponsored by the board of directors and eliminates any opportunity for shareholders to present alternative criteria. The interpretation is an unnecessary limitation on the shareholder franchise, effectively depriving shareholders of rights that exist under state law, and is inconsistent with the Commission’s intent in adopting subsection (i)(9).” McRitchie further noted that proxy statement “[e]xclusion also cannot occur where the bylaw has been adopted ‘in response to’ a shareholder proposal. The circumstances surrounding the bylaw proposed by Whole Foods suggests that it was adopted ‘in response to’ the proposal submitted in this case.”
On January 16th, in conjunction with Chair White’s request, the Division of Corporation Finance withdrew its Whole Foods no-action letter. And as a number of news outlets noted, shareholder advocates cheered. See, e.g., CFO.com, New York Times. But the true effect of the SEC’s punt won’t be known until after the staff completes its review and makes public its findings.