As we noted recently, the Court of Appeals vacated the SEC’s rules on proxy access which was principally set forth in Rule 14a-11. When the SEC adopted Rule 14a-11, it also adopted amendments to Rule 14a-8. The amendments to Rule 14a-8 provide that public companies will no longer be able to rely Rule 14a-8(i)(8) to exclude a proposal seeking to establish a procedure in a company’s governing documents for the inclusion of one or more shareholder nominees for director in a company’s proxy statement. While the amendments to Rule 14a-8 were stayed by the SEC in connection with the proxy access litigation, our view is the SEC could lift the stay and the rules could become operative.
The revisions to Rule 14a-8 are a potent weapon for activist investors that we have long advised clients could create far more issues than the now vacated proxy access rules. The reason is simple: There are no onerous ownership or length of holding thresholds. Under Rule 14a-8, a shareholder need only own $2,000 worth of stock and have held it for one year. Long time Rule 14a-8 activists like John Chevedden may have a field day. Well funded activists may become disruptive.
That being said, these new rules may be tempered by state law. For instance, for companies incorporated in the State of Minnesota, a shareholder must own 3% of the outstanding common stock in order to make a binding by-law proposal.
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