In a prior Alert ("SEC Proposals for Shareholder Access to Proxy Statement"), we discussed the Securities and Exchange Commission's (the "SEC") two alternative proposals in response to the Second Circuit's decision in AFSCME v. AIG, 462 F.3d 121 (2d Cir. 2006). In AFSCME, the Second Circuit held that Rule 14a-8(i)(8) of the Securities Exchange Act of 1934 (the "Exchange Act" and such rule, the "Election Exclusion") does not allow a company to exclude a shareholder proposal that could result in shareholders waging contested elections in the company's proxy materials at the expense of the company and without the disclosures required by the SEC's proxy rules under the Exchange Act.1
The SEC recently issued Exchange Act Release No. 34-56914 (the "Adopting Release"), adopting its proposal that seeks to clarify and confirm the SEC's historical and current application of the Election Exclusion and to allow companies to rely on the Election Exclusion to exclude bylaw proposals such as that proposed by AFSCME.2 Specifically, the Adopting Release, among other things:
- amends Rule 14a-8(i)(8) to read as follows: "If the proposal relates to a nomination or an election for membership on the company's board of directors or analogous governing body or a procedure for such nomination or election";
- clarifies that the term "procedures" in the election relates to procedures that would result in a contested election either in the year in which the proposal is submitted or in any subsequent year; and
- explains that amended Rule 14a-8(i)(8) does not (a) affect the Schedule 14A collection of information for purposes of the Paperwork Reduction Act of 1995 or (b) impose any new reporting, recordkeeping or compliance requirements.
To read the full text of the Adopting Release, see: http://www.sec.gov/rules/final/2007/34-56914.pdf.
The effective date of this amendment to Rule 14a-8(i)(8) is January 10, 2008. Therefore, on and after January 10, 2008, Rule 14a-8(i)(8), as amended, will apply to all shareholder proposals relating to a (1) nomination or an election for membership on a company's board of directors or an analogous governing body or (2) procedure for such nomination or election.