A coalition of 17 business groups is calling upon the Securities and Exchange Commission to reinstate its policy on providing guidance for shareholder proposals that conflict with those submitted by a company’s management and arguing that a failure to do so could violate the Administrative Procedures Act.
In January, SEC Chairman Mary Jo White instructed the Division of Corporation Finance to hold off on issuing no-action letters on the application of Rule 14a-8, which allows companies to exclude shareholder proposals that conflict with a management proposal on the same issue, for the remainder of this year’s proxy season. The decision is a reversal from an earlier opinion that in support of Whole Foods’ plan to exclude a shareholder-submitted proxy access proposal in favor of a management proposal despite a much higher minimum ownership threshold. White called for a review of the SEC’s approach to the no-action letters.
The letter from business groups asks White to reinstate CorpFin’s past practice. Among those signing it were the American Bankers Association, American Petroleum Institute, Financial Services Roundtable, National Association of Corporate Directors, Securities Industry and Financial Markets Association, and the U.S. Chamber of Commerce.
“Such an abrupt change to the SEC’s longstanding practice under Rule 14a-8, coming as many reporting companies are finalizing and distributing annual proxy statements, is extremely disruptive to fundamental governance,” the groups wrote. “We [also object] to the opaque process by which this sudden shift in policy was decided and communicated to the public, which threatens to undermine the integrity of an already challenging process.”
“Changing this policy in the midst of proxy season, and without due process, is fundamentally at odds with basic principles of good governance,” the letter adds, arguing that the abrupt change in policy may violate the Administrative Procedure Act, which requires regulators to give notice and respond to public comments “before significantly shifting course.”
The groups say that White's announcement “places issuers and their shareholders in a state of uncertainty, and presents them with a series of questions for which there may be no good answers.”
Among those questionsthey say await answers from the Commission:
For issuers presenting their own alternative proposal to shareholders for consideration, and who cannot get no-action assurance, should they exclude a shareholder proposal in favor of their own and face the heightened risk of litigation with the proponent or the SEC?
Do they risk shareholder confusion by including both their own proposal and a competing one from a proponent? If they do, what happens if shareholders approve both proposals?
Should companies seeking certainty be forced to incur the added expense and distraction to management of seeking declaratory relief in federal district court since the Division refuses to take any position on the SEC’s own rule?