The division of corporate finance of the SEC released a new staff legal bulletin on Friday dealing with shareholder proposals on company proxy statements. One aspect of the bulletin concerns a hypothetical shareholder proposal that requires the board of directors to amend the company’s charter. The question at hand is whether the proposal can be excluded from the proxy statement if applicable state law requires that a charter can only be amended if the amendment is initiated by the board of directors and subsequently approved by the shareholders. 

This sounds like excluding a proposal based on a technicality. Is the applicable state law really designed to discourage shareholder input preceding a charter amendment? If a large shareholder suggests a charter amendment to the board, and the board studies the issue and comes to the same conclusion, should the amendment be considered board-initiated?

Interestingly, the staff bulletin answers with a technicality of its own. The staff concedes there is some basis for excluding such a proposal based on state law; however, the proponent should be permitted to revise the proposal to urge the board of directors to “take the steps necessary” to amend the charter.

According the SEC’s website, staff legal bulletins represent the views and policies of the staff but are not legally binding. The last such bulletin was issued in June of 2005.