On September 6, 2019, the SEC’s Division of Corporation Finance announced two notable revisions to its approach to handling no-action requests by companies seeking to exclude shareholder proposals under Rule 14a-8.
SEC Staff may decline to state a view with respect to a company’s asserted basis for exclusion.
Rule 14a-8 allows companies to request no-action relief from the Staff to exclude shareholder proposals. Under prior guidance, the Staff would either grant the relief or refuse to grant it. In the recent announcement, the SEC Staff said they now will use a third option – declining to take a view on the requested relief. That third option would leave the company free, should it decide to do so after taking into account the circumstances, to exclude the shareholder proposal if it has a valid legal basis to do so under Rule 14a-8. The SEC Staff further noted that a refusal to state a view on any particular request should not be interpreted as equivalent to an indication that a proposal must be included. The announcement recognizes that notwithstanding such a response, the requesting company may well have a valid legal basis to exclude the proposal under Rule 14a-8. Significantly, the announcement reemphasizes the usefulness of a board of directors’ analysis when a company seeks to exclude a shareholder proposal. The SEC Staff previously commented in Staff Legal Bulletin Nos. 14I and 14J that inclusion of a board’s analysis and the specific substantive factors considered by a board of directors is beneficial in the Staff’s review of a no-action request. However, practice indicates that to date companies infrequently include a board analysis when submitting no-action requests.
SEC Staff may respond orally to certain no-action requests.
The SEC Staff also indicated that it may respond to no-action requests orally instead of in writing. The announcement did not specify the circumstances under which the SEC Staff would respond orally but the SEC Staff did indicate that response letters will continue to be issued where it believes doing so would provide value, such as more broadly applicable guidance about the application of Rule 14a-8.
Takeaway
The impact of the changes remains to be seen during the 2020 proxy season as companies and shareholders interpret oral responses and deal with instances where the Staff declines to take a view. The Staff’s ability to respond orally may be used as a way to avoid issuing duplicate no-action letters for proposals that the Staff has previously addressed in a written letter. The revisions may also forecast additional changes and rule proposals relating to shareholder proposals.
