SEC: Nix Shareholder-Proposal Rule, Update Proxy Solicitations
Commentary by Steven Lofchie
The SEC proposed to rescind its shareholder-proposal rule and, separately, to reduce proxy solicitation requirements.
The first proposal would rescind Exchange Act Rule 14a-8 ("Shareholder proposals"), which requires companies to include shareholder proposals in proxy materials under certain conditions. The Commission said rescinding the rule would leave determinations about the role of shareholder proposals to state law and company governing documents. The proposal further stated that Rule 14a-8 exceeds the SEC's authority under Exchange Act Section 14(a) by intruding into state law without express authorization from Congress.
The same release proposes amendments to Exchange Act Rule 14a-4 ("Requirements as to proxy") that would expand when a company may exercise discretionary voting authority on matters raised at a meeting but not included in its proxy materials, while giving shareholders a way to withhold that discretionary authority.
A separate release proposes amendments to change proxy solicitation rules by (i) eliminating the requirement under Exchange Act Rule 14a-3 ("Information to be furnished to security holders") that companies deliver an annual report to security holders in connection with the solicitation of proxies; (ii) removing the delivery deadline for documents incorporated by reference into a proxy statement under Schedule 14A ("Information required in proxy statement"), Securities Act Form S-4, and Securities Act Form F-4; (iii) eliminating the requirement to submit Notices of Exempt Solicitation under Exchange Act Rule 14a-6 ("Filing requirements"); and (iv) shortening the minimum broker search period under Exchange Act Rule 14a-13 ("Obligation of registrants in communicating with beneficial owners") from 20 to five business days. (Note that the requirement to deliver an annual report to shareholders is distinct from the obligation of SEC-registered issuers to file a Form 10-K annual report with the SEC, which is required under Exchange Act Rule 13a-1 ("Requirements of annual reports").)
Comments on both proposals are due 60 days after publication in the Federal Register.
Commentary
Interesting for the SEC to take the view that its existing rules exceed its statutory authority. Certainly a position that would have been inconceivable under the prior Administration.
That said, the argument that the SEC has long acted improperly in federalizing state corporate law is not a trivial one, although it has been debated little in recent years. If that view should take hold, the repeal of Rule 14a-8 would likely not be the stopping point.