Table of Contents
1. Overview of the Shareholder Proposal Rule
1.01 Introduction 8-20
1.02 Purpose of the Shareholder Proposal Rule 8-20
1.03 The Shareholder Proposal Rule Process 8-20
1.04 How the Shareholder Proposal Rule is Used 8-21
1.05 Future of the Shareholder Proposal Rule 8-22
2. Proposal Submission & No-Action Processes
2.01 Submission of Proposal to Company 8-22
A. Eligibility Requirements 8-22
B. Deadline for Submitting Proposals 8-23
1. How to Draft a Proposal 8-23
2.02 Submission of No-Action Request & Rebuttal to Staff 8-23
A. Company Responses 8-23
B. Deadline for No-Action Request 8-24
C. What to Submit to the SEC Staff 8-24
D. How to Make Arguments to the SEC Staff 8-25
E. Copy of No-Action Request to Proponent 8-26
F. Timetable for Rebuttal 8-26
G. Proposal Revisions 8-27
H. Withdrawn Proposals 8-28
I. Third-Party Letters Permitted But Not Required to be Considered 8-28
J. SEC Posts Incoming No-Action Requests 8-29
2.03 Staff Processing Procedures for Proposals 8-29
A. Staff’s Workload Heavy 8-29
B. Internal Staff Processing 8-29
C. Staff Response Letters 8-31
D. Types of Staff Responses & How Sent 8-31
E. Single Basis Cited 8-32
F. Lack of Precedential Effect 8-32
G. No-Action Letters Provide Limited Protection 8-33
H. Seeking Court Approval for Exclusion Rather Than SEC Staff 8-33
I. Proponents Filing Lawsuits to Compel Inclusion 8-33
2.04 Post-Ruling Role of Staff 8-34
2.05 Inclusion of Proposal 8-34
A. What Company Must Do to Include Proposal 8-34
B. Seeking to Change the Proposal’s Language 8-34
C. Companies Can’t Change Proposal Title Nor Mangle Proxy Card Description 8-35
D. Disclosure of Opposition to Proposal 8-35
3. Defining a Proposal
3.01 Background 8-35
3.02 Mere Expression of Views 8-36
3.03 Request for Information Not Automatically Excludable 8-36
3.04 Determining Whether Communication is a Proposal or Suggestion/Complaint 8-36
3.05 Determining Whether Communication is a Proposal or Nomination 8-37
3.06 Sometimes Difficult to Distinguish Shareholder Proposals & Shareholder Communications 8-37
4. Deadline for Seeking No-Action Relief
4.01 Deadline for No-Action Request 8-38
A. History of the Deadline 8-38
B. Purpose of the Deadline 8-39
4.02 Obtaining a Waiver of the Deadline 8-39
A. Identifying the Key Issues 8-39
B. Delay Caused by Proponent’s Tardiness 8-40
1. Grant of Waiver and Exclusion Allowed 8-40
2. Grant of Waiver But No Exclusion Allowed 8-40
C. Delay Caused by Company’s Tardiness 8-40
1. Decline to Waive Deadline But Address Other Bases 8-40
2. Decline to Grant Waiver and Exclusion Not Allowed 8-41
4.03 Exclusion Without Staff Relief 8-41
4.04 Practice Pointers 8-42
5. Appealing a Staff Decision
5.01 Introduction 8-42
5.02 Reconsideration of Staff Decisions 8-43
5.03 Commission Appeal of Staff Decision 8-43
5.04 Litigating Against the Company 8-44
A. Staff Guidance is Non-Binding 8-44
B. Staff Expressing “No View” 8-45
C. Attorneys’ Fees 8-45
5.05 Lawsuits Against the Commission or Staff 8-46
5.06 Practice Pointers 8-46
6. Statements In Opposition
6.01 Background of the Provision 8-48
A. History of the Provision 8-48
B. Purpose of the Provision 8-48
6.02 Application of the Provision 8-49
A. Identifying the Key Issues 8-49
B. Staff Review of Proposal Disclosure 8-49
C. Company Not Liable for Proponent’s Disclosure 8-49
D. No Word Limitation 8-49
E. Advance Copy Must Be Provided to Proponent 8-50
F. Making Statement Changes After Already Provided 8-50
G. Inability to Meet Advance Copy Deadline 8-51
H. Proponent’s Belief that Disclosure Is False and Misleading 8-51
I. Revising Statements in Opposition 8-52
J. Who Has Standing to Challenge Disclosure 8-53
K. Excluding Statement from Preliminary Proxy Statement 8-53
L. What is a “Statement in Opposition”? 8-53
M. Seeking to Change Proposal’s Language 8-54
N. Seeking to Change Proxy Statement’s Formattin 8-54
O. Regulation FD Concerns 8-54
P. Statements in Support Permissible 8-55
Q. Can Discuss Proposal Topic with Other Shareholders (But File Written Communications) 8-55
6.03 Practice Pointers 8.56
7. Eligibility to Submit a Proposal
7.04 Proof of Ownership Requirement 8-64
A. Documentary Support from a Record Holder 8-65
B. Broker Documentation as Proof; DTC Participants vs. Introducing Brokers 8-65
C. Failure by Broker to Provide Documentation 8-67
1. Snapshots in Broker Statements 8-67
D. SEC Filings 8-68
E. Phone Conversations 8-68
F. Failure to Respond Appropriately 8-68
7.05 Holding Period 8-68
A. One-Year Period 8-68
B. Tacking of Holdings in Predecessor Company 8-69
7.06 Valuation of Securities 8-70
A. $2,000 Requirement 8-70
B. No Need for Continuous Ownership of $2,000 8-70
C. Shareholders Permitted to Aggregate Holdings to Meet Threshold 8-70
7.07 Continuous Ownership Until Shareholders’ Meeting 8-70
A. Statements about Continuous Ownership 8-70
B. Failure to Hold Securities until Meeting Date 8-71
7.08 Practice Pointers 8-71
8. One-Proposal Rule
8.01 Background of the Exclusion 8-73
A. History of the Exclusion Purpose of the Exclusion
B. Purpose of the Exclusion Purpose of the Exclusion
8.02 Application of the Exclusion 8-73
A. Identifying the Key Issues 8-73
B. Distinct Multiple Proposals 8-74
C. Opportunity to Cure 8-74
C1. Failure to Provide Notice and Opportunity to Cure 8-74
D. Relate to One Concept 8-74
E. No Substitute Proposals 8-75
8.04 Practice Pointers 8-75
9. Alter Egos
9.01 Introduction 8-75
9.02 Family Members 8-76
9.03 Persons Under Common Control 8-76
A. Common Interest in Securities 8-76
B. Agents for Proponents 8-76
C. Investment Advisor as Permissible Agent 8-77
10. Limitation on Proposal Length
10.01 Background of the Exclusion 8-78
A. History of the Exclusion 8-78
B. Purpose of the Exclusion 8-78
10.02 Application of the Exclusion 8-79
A. Identifying the Key Issues 8-79
B. Staff Performs Own Count Manually 8-79
C. Waiver of Word Limit 8-79
D. Need for More Words 8-79
10.03 Notification of Deficiency and Opportunity to Cure 8-80
A. Notification Requirement 8-80
B. Contents of Notice 8-80
C. No Second Chance to Cure 8-80
D. Revised Proposal Exceeding Limit 8-80
10.04 Determination of What Constitutes a “Word” 8-81
A. Titles and Introductory Statements 8-81
B. Numbers and Acronyms 8-81
C. Hyphens 8-81
D. Graphics 8-81
E. Web Site Addresses 8-83
10.05 Practice Pointers 8-83
11. Submission Deadline
11.01 Background of the Exclusion 8-85
A. History of the Exclusion 8-85
B. Purpose of the Exclusion 8-86
11.02 Application of the Exclusion 8-86
A. Identifying the Key Issues 8-86
B. Disclosure of Deadline in SEC Filings 8-87
C. Erroneous Disclosure of Deadline in SEC Filings 8-87
D. Applicability of Advance Notice Bylaw Provisions 8-87
E. Different Methods to Submit Proposals 8-88
F. Adding a Co-Proponent 8-88
G. Company as Cause for Missing Deadline 8-88
H. Notifying the Proponent 8-88
I. Deadline & Proof of Ownership Are Different 8-89
11.03 Calculation of Deadline for Annual Meetings 8-89
A. Normal Deadline 8-89
B. How Not to Calculate Deadline 8-90
C. Deadline Is Bright-Line Rule 8-90
D. Receipt Date Counts 8-90
E. Deadline May Fall on Weekend or Holiday 8-91
F. Other Type of Deadline: Floor Proposals & Advance Notice Bylaws 8-91
G. What Disclosure Looks Like 8-92
H. Amended Proposals 8-92
I. Withdrawals and Resubmissions 8-93
J. Notice of Intention to Submit 8-93
K. Meeting Date Must Be Set 8-93
L. Assess What Type of Proposal Received 8-94
M. Spun-Off Company Deadlines 8-94
N. Use of Discretionary Proxy Authority 8-94
11.04 Calculation of Special Meeting and Changed Meeting Deadlines 8-95
A. Deadline If No Annual Meeting in Prior Year 8-95
B. Deadline for Special Meetings 8-97
C. Changing the Deadline 8-97
11.05 Definition of “Principal Executive Offices” 8-98
11.05.A. What Are “Principal Executive Offices” 8-98
11.05.B. Good Faith Efforts Irrelevant 8-98
11.06 Practice Pointers 8-98
12. Attendance at the Meeting
12.01 Background of the Exclusion 8-99
A. History of the Exclusion 8-99
B. Purpose of the Exclusion 8-100
12.02 Application of the Exclusion 8-100
A. Identifying the Key Issues 8-100
B. Before-the-Fact Application 8-101
C. Evidence of Lack of Attendance 8-101
D. What Constitutes “Presenting” a Proposal 8-101
E. Proponent Not Required to Vote for Proposal 8-102
F. Proposals Submitted During Two-Year Period 8-102
G. Applies to Special & Annual Shareholders’ Meetings 8-103
H. Applies to Virtual Shareholders’ Meetings 8-103
I. No Need for a “Second” 8-103
J. Adjournments 8-103
12.03 Good Cause Exception 8-103
A. Explanations That Are Not “Good Cause” 8-104
B. Even Showing Good Cause May Be Insufficient 8-104
C. Proponent Must Actually Present Proposal 8-104
12.04 Qualifications for Proponent Representatives 8-105
A. State Law Governs Representative Proces 8-105
B. Representative Does Not Have to be Shareholder 8-106
C. Representative Must Show Shareholder’s Authority Delegation 8-106
D. Representative Can Obtain Own Representative 8-107
E. Company Employee as Representative 8-107
12.05 Failing Proposals 8-108
A. Company Moves Failing Proposal (& Proponent Can’t Withdraw) 8-108
B. Company Allows Failing Proposal to Be “Withdrawn” 8-108
12.06 Practice Pointers 8-108
13. Identification of Proponents
13.01 Background of the Exclusion 8-110
A. History of the Exclusion 8-110
B. Purpose of the Exclusion 8-110
13.02 Application of the Exclusion 8-111
A. Identifying the Key Issues 8-111
B. Providing Identifying Information Upon Request 8-111
C. Inclusion of Identifying Information in Proposal or Supporting Statement 8-111
D. Rule Applies to All Types of Identifying Information 8-112
E. Applies to Co-Proponents or Representatives 8-112
F. Need to Provide More than Name and Address upon Request 8-112
14. Improper under State Law
14.01 Background of the Exclusion 8-113
A. History of the Exclusion 8-113
B. Purpose of the Exclusion 8-114
C. Overlap with Other Exclusions 8-114
14.02 Application of the Exclusion 8-115
A. Identifying the Key Issues 8-115
B. Lack of State Law Guidance for Staff 8-115
C. Judicial Interpretation of Interplay Between State and Federal Law 8-116
D. Exclusion Causes Tension Between State and Federal Law 8-116
E. Legal Opinion Requirement 8-116
1. Form of Opinion 8-116
2. Opinion Content 8-117
3. Bar of Lawyer Rendering Opinion 8-117
a. No Requirement for Proponent to Submit Legal Opinion 8-117
b. Dueling Opinions 8-117
14.03 Interpretive Approaches 8-118
A. “Mandatory” Versus “Precatory” Proposals 8-118
1. Rebuttable Presumption that Precatory Proposals Includable 8-118
2. Precatory Presumed Unless Binding Nature Evident 8-118
3. Which State Law Applies 8-118
4. Opportunity to Cure 8-119
5. Laws that Provide Specific Power to the Board 8-119
B. Precatory Characterization Not a Cure 8-119
1. Exxon Corporation 8-119
2. Pennzoil Corporation 8-120
C. Mandatory Bylaw Proposals 8-120
1. Laws that Allow Shareholders to Mandate Bylaw Amendments 8-121
2. Staff Analysis of Bylaw Amendment Proposals 8-122
3. SEC Staff May Have “No View” 8-122
4. Battles Over Mandatory Bylaw Amendments 8-122
a. Fleming Companies 8-123
b. Quickturn Design Systems, Inc 8-123
c. Shiva Corporation 8-124
d. General DataComm 8-124
5. CA v. AFSCME Employees Pension Plan 8-125
14.04 Practice Pointers 8-127
15. Violation of Law
15.01 Background of the Exclusion 8-128
A. History of the Exclusion 8-128
B. Purpose of the Exclusion 8-128
C. Overlap with Other Exclusions 8-128
15.02 Application of the Exclusion 8-129
A. Identifying the Key Issues 8-129
B. Opportunity to Cure 8-129
15.03 Legal Opinion Requirement 8-129
A. Form of Opinion 8-129
B. Opinion Content 8-129
C. Bar of Lawyer Rendering Opinion 8-130
D. No Requirement for Proponent to Submit Legal Opinion 8-130
E. Dueling Opinions 8-130
15.04 Types of Law 8-131
A. State Law 8-131
1. State Corporate Law 8-131
2. Other State Laws 8-131
3. Breach of Contract 8-131
4. Renegotiations of Existing Contract Rights 8-132
B. Federal Laws 8-132
C. Foreign Law 8-132
1. Foreign Law Resulting in Breach of State or Federal Law 8-132
15.05 Common Type of Proposals 8-132
A. Shareholder Rights 8-132
B. Unilateral Amendment of Certificate of Incorporation 8-132
C. Board Structure 8-133
D. Rights Plans 8-133
E. Mandatory Arbitration 8-133
15.06 Practice Pointers 8-133
16. Violation of the Proxy Rules
16.01 Background of the Exclusion 8-134
A. History of the Exclusion 8-135
B. Purpose of the Exclusion 8-135
C. Overlap with Other Exclusions 8-135
16.02 Application of the Exclusion 8-136
A. Identifying the Key Issues 8-136
B. Time Consuming Nature for Staff 8-137
C. Violation of Rule 14a-9 8-137
D. Violations of Other Proxy Rules 8-137
E. Types of SEC Staff Responses 8-137
F. Problems Only with Supporting Statement 8-138
G. Opportunity to Correct or Support 8-138
H. Impact of Word Limit 8-138
I. Presentation of Proposal 8-138
16.03 Overly Vague Proposals 8-139
A. Lack of Direction About Implementation 8-139
16.04 False & Misleading 8-139
A. Types of “False & Misleading” Information 8-139
B. Rare for Staff to Allow Exclusion Due to False Supporting Statement 8-139
C. Personal Disclosures About the Proponent 8-139
D. Defamation or Impugning Character 8-139
E. URLs in Proposals 8-140
16.05 Modifying Proposals or Supporting Statements 8-140
A. 8-140
