By James Hamilton, J.D., LL.M.
The SEC has definitely decided to quickly amend the shareholder proposal Rule 14a-8 in light of a recent Second Circuit panel opinion. The proposed amendments will be announced at an open meeting on October 18.
The federal appeals panel 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 Rule 14a-8 and thus cannot be excluded from proxy materials. The opinion raises the specter of non-uniform ad hoc proxy access bylaw proposals. This fearful scenario strikes at the basic principle that national securities markets demand uniform federal regulation.
I expect that the SEC will move very quickly to adopt this proposal after a short comment period in order to assure the nationwide application of Rule 14a-8. Indeed, Chairman Cox has promised that the final rule will go into effect in time for the 2007 proxy season.
Rule 14a-8 is an ancient rule (1942 adoption) that attempts to strike the proper balance between the shareholder’s right to engage in corporate democracy and a company’s desire not to spend time and money considering shareholder proposals lacking any substantial nexus to the company. Rule 14a-8 was completely overhauled in 1998 and recast in a novel Q&A format.