On July 26, the Wall Street Journal reported that the Securities and Exchange Commission’s Chairman Christopher Cox and the four SEC commissioners voted to approve the submission of two competing proposals on shareholder access to proxies. Chairman Cox voted in favor of both proposals, siding with two Democratic commissioners on one proposal and siding with two Republican commissions on the second proposal. The proposals relate to the inclusion in a company’s proxy materials of shareholder proposals regarding the election of members of a company’s board of directors.
The two proposals stem from a decision by the U.S. Court of Appeals for the Second Circuit invalidating the SEC’s long standing interpretation of Rule 14a-8(i)(8) of the Securities Exchange Act of 1934 providing that a company may exclude from its proxy materials a proposal that relates to an election for a member of a company’s board of directors. In applying this rule, the SEC has determined that companies may exclude from their proxy statements proposals to establish a process for conducting contested elections outside of the SEC’s rules governing contested elections. In September 2006, U.S. Court of Appeals for the Second Circuit stated that the SEC’s interpretation was inconsistent with its prior interpretation of the rule.
One proposal, supported by the two Democratic commissioners, would require companies to include in its proxy materials proposals by shareholders who own 5% or more a company’s stock for a one year to change the company’s bylaws on the election of directors.
The other proposal, supported by the two Republican commissioners, would amend Rule 14a-8(i)(8) of the Exchange Act to codify the SEC’s interpretation of the rule since 1990 to exclude from a company’s proxy statement all shareholder proposals related to the election of directors including all shareholder proposed bylaws concerning director nominations.
On July 25, in a SEC open meeting, Chairman Cox stated that “By advancing two very different proposals, we will have the benefit of the full breadth of commentary about different ways of attacking this issue. By considering serious alternatives, we will have the benefit of thorough analysis of a variety of ways to accomplish our stated objectives.” (Wall Street Journal, 7/26/07, Section C-1)