Thursday, December 07, 2006

SEC Postpones Consideration of Shareholder Access

By James Hamilton, J.D., LL.M.

The SEC has postponed its consideration of proposed revisions to its rule concerning shareholder proxy initiatives. The consideration was originally scheduled for the Dec 13 open meeting because a federal appeals court panel recently ruled that a shareholder proposal seeking to amend a company’s bylaws to establish a procedure by which shareholder-nominated candidates may be included on the corporate ballot does not relate to an election within the meaning of SEC proxy rules and thus cannot be excluded from corporate proxy materials. (AFSCME v. American International Group, Inc., CA-2, Sept 5, 2006).

An SEC no-action letter and a federal district court ruling allowed the company to exclude the proposal based on Rule 14a-8(i)(8), which allows the exclusion of a proposal relating to an election for membership on a company’s board of directors. But the appeals court ruled that a shareholder proposal does not relate to an election under the exclusion if it simply seeks to amend the corporate bylaws to establish a procedure by which certain shareholders are entitled to include in the corporate proxy materials their nominees for the board of directors.