On September 7, 2011, the U.S. Securities and Exchange Commission (Commission) confirmed in a press release that it will not challenge the July 22, 2011 U.S. Court of Appeals' decision to vacate Rule 14a-11 under the Securities Exchange Act, the Commission's “proxy access” rule adopted in August 2010. This rule would have required public companies to include shareholders' director nominees in company proxy materials under certain circumstances.
However, the Commission announced in the press release that it will allow its stay of the effectiveness of its amendments to Rule 14a-8 implemented in response to the litigation regarding Rule 14a-11 to expire upon the finalization of the Court of Appeals' decision, which is expected to occur on September 13, 2011. The amendments to Rule 14a-8 provide eligible shareholders the right to require companies to include shareholder proposals regarding proxy access procedures in company proxy materials. The Commission's press release describes these amendments as a means for “shareholders and companies [to] have the opportunity to establish proxy access standards on a company-by-company basis – rather than a specified standard like that contained in Rule 14a-11.” Accordingly, while public companies will not have mandatory proxy access for the 2012 proxy season, they may receive shareholder proposals on the topic, including proposing proxy access bylaws, for the 2012 proxy season.
Specifically, the Commission's amendments to Rule 14a-8 will repeal Rule 14a-8(i)(8), which has allowed companies to exclude a shareholder proposal that relates to a nomination or an election for membership on the company's board of directors or a procedure for such nomination or election, other than a proposal that (a) would disqualify a nominee who is standing for election; (b) would remove a director from office before his or her term expired; (c) questions the competence, business judgment, or character of a nominee or director; (d) seeks to include a specific individual in the company's proxy materials for election to the board; or (e) otherwise could affect the outcome of the upcoming election of directors. As a result, companies will no longer be able to rely on Rule 14a-8(i)(8) to exclude shareholder proposals regarding proxy access procedures from company proxy materials.