SEC Staff Guidance on Shareholder Proposals

July 8, 2005

On June 28, 2005, the Staff of the SEC Division of Corporation Finance issued Staff Legal Bulletin No. 14C (CF) with guidance on selected issues that arose in the 2005 proxy season under Rule 14a-8.

The Bulletin addresses company requests to exclude the following types of proposals from the proxy statement:

  • Director Independence:  The Staff allowed companies to exclude proposals calling for director independence under Rule 14a-8(i)(6) (lack of power or authority to implement) only if the proposals appeared to require continuous independence and did not contemplate the ability to cure defects.  This approach is consistent with independence standards for audit committees of listed companies, which provide an opportunity to cure defects before listing can be challenged.  The Staff agrees that companies lack the practical ability to ensure director independence at all times. 

  • Evaluation of Environmental or Public Health Risk:  The Staff allowed companies to exclude proposals about environmental or public health issues as dealing with ordinary business matters not involving “significant social policy issues” under Rule 14a-8(i)(7) only if they focused on the internal assessment of risks or liabilities a company faces due to the environmental or public health impact of its operations.  If the proposal focused on the company minimizing or eliminating operations that may adversely affect the environment or the public’s health, the Staff did not allow exclusion.

The Bulletin clarified that Rule 14a-8(l) permits exclusion of a proponent’s name, address and share ownership without the need for a no-action request, as long as the company includes a statement that it will provide this information to shareholders promptly upon request.

Finally, the Bulletin provided procedural guidance about the proxy no-action process, including about the materials a company must include when submitting a no-action request or to show withdrawal of a proposal submitted by multiple shareholder proponents.

The Bulletin is available at http://www.sec.gov/interps/legal/cfslb14c.htm. 

If you have any questions, please free to call any of your regular contacts at the firm or any of our partners and counsel listed under Corporate Governance in the Practice Area section of our web site (http://www.clearygottlieb.com). 

CLEARY GOTTLIEB STEEN & HAMILTON LLP