Companies seeking to exclude shareholder proposals in their proxy statements may see, in lieu of the standard no-action written response, either an oral response from the SEC or no response at all. On September 6, 2019, the SEC announced that, beginning with the 2019-2020 shareholder proposal season, it is making changes to its procedures related to no-action requests to exclude shareholder proposals in an attempt to enhance efficiency and speed up responses.
The most notable change is the manner in which the SEC staff may respond to some shareholder proposal no-action requests from companies seeking to exclude Rule 14a-8 shareholder proposals. The SEC staff may now determine to respond orally to no-action requests. However, the SEC has stated that it will continue to issue written response letters in particular situations where written responses may “provide value, such as more broadly applicable guidance.”
The Staff also indicated that it may decline to take any sort of view on a particular exclusion request. In those situations, “the interested parties should not interpret that position as indicating that the proposal must be included [in the company’s proxy statement].” Instead, the party requesting exclusion may have a valid legal basis to exclude the proposal under Rule 14a-8. As has always been the case, the parties may continue to “seek formal, binding adjudication on the merits of the issue in court.”
The Staff has reiterated that an analysis by the board of directors is useful when a company seeks to exclude a proposal from its proxy materials on the grounds of economic relevancy (Rule 14a-8(i)(5)) or ordinary business (Rule 14a-8(i)(7)).
Written no-action responses have the benefit of providing comfort to companies when excluding shareholder proposals. An oral response from the SEC or no response at all may make it more difficult to determine the Staff’s view on the application of Rule 14a-8, creating more uncertainty for the upcoming proxy season, in which case parties may feel compelled to use the adjudication option to resolve their differences. Clients should begin to consider how these changes may affect their processes in advance of the upcoming proxy season.