On September 6 2011 the Securities and Exchange Commission (SEC) announced that it will not seek rehearing of or appeal to the Supreme Court the panel decision of the US Court of Appeals for the District of Columbia Circuit, which invalidated Rule 14a-11 of the 1934 Securities Exchange Act, as amended.(1) The rule would have required companies to include in their proxy materials, at their own expense, director candidates nominated by shareholders under specified conditions.
The SEC's voluntary stay of a companion amendment to Rule 14a-8 (imposed in Autumn 2010) will expire without further SEC action when the DC Circuit panel decision becomes final (expected on September 13 2011). The SEC announced that, without further action:
- the amended rule will take effect; and
- a notice of the effective date of the Rule 14a-8(i)(8) amendment will be published.
As amended, Rule 14a-8(i)(8) narrows the categories of shareholder proposal concerning director elections that a company may exclude from its proxy materials. Specifically, it will eliminate companies' ability to exclude shareholder proposals that "relate to an election". Thus, companies will no longer be able to exclude binding or precatory shareholder proposals relating to bylaw amendments that establish procedures for shareholder nomination of director candidates, provided that the proposals are otherwise not excludable under Rule 14a-8 (eg, because they violate state law under Rule 14a-8(i)(1)). The normal Rule 14a-8 minimum ownership and other eligibility requirements will continue to apply. This means that where otherwise permissible under state law (eg, as in Delaware), shareholders will be able to cause companies to implement a variety of proxy access standards that could be more permissive than those originally prescribed by Rule 14a-11 (eg, the continuous ownership of a minimum of 3% for at least three years). Companies should begin to prepare now for the possibility of proxy access proposals from eligible shareholders for the 2012 proxy season.(2)
For further information please contact Howard B Dicker at Weil, Gotshal & Manges LLP's New York office by telephone (+1 212 310 8000), fax (+1 212 310 8007) or email ([email protected]). Alternatively, please contact Cathering T Dixon at Weil Gotshal & Manges's Washington, DC office by by telephone (+1 202 682 7000), fax (+1 202 857 0940) or email ([email protected]).
(1) A copy of Chairman Schapiro's statement is available at www.sec.gov/news/press/2011/2011-179.htm.
(2) For more information on the court's decision, please see "DC Circuit Invalidates Federal Proxy Access Rule: Where Might the SEC Go from Here", July 27 2011.