Tuesday, March 17, 2015

Staff Reverses Position After GE Adopts Proxy Access Bylaw

[This story previously appeared in Securities Regulation Daily.]

By John Filar Atwood

In the latest chapter in what has been a controversial year for proxy access proposals, the staff of the Division of Corporation Finance has advised General Electric that it may omit a shareholder proposal after the company “substantially implemented” the proposal by adopting a proxy access bylaw. The staff originally denied GE’s request for omission in December. It is the first time that the staff has reversed its course on a proxy access proposal where the company’s adoption of a new policy rendered the shareholder proposal moot.

Proponent’s request. The proposal was submitted to GE by Kevin Mahar and requested that the company allow shareholders that have owned three percent of GE’s shares continuously for at least three years to include the names of their board nominees on the company’s proxy statement. Mahar’s proposal included the provision that the number of shareholder-nominated candidates could not exceed 20 percent of the number of directors then serving.

In December, the staff advised GE that it may not exclude Mahar’s proposal from its proxy materials under Rule 14a-8(b). GE had argued that it did not have to include the proposal because Mahar had failed to document that he owned the requisite number of GE shares. The staff denied GE’s request, noting that Mahar provided a written statement regarding his intent to hold GE’s common shares through the date of the meeting as required by Rule 14a-8(b).

GE’s new bylaw. In early February, GE amended its bylaws to put in place its own proxy access procedure. As reported in an earlier Securities Regulation Daily story, GE’s new bylaw permits a shareholder, or a group of up to 20 shareholders, owning three percent or more of the company’s outstanding common shares continuously for at least three years to nominate and include in the company’s proxy materials directors constituting up to 20 percent of the board.

In light of its new bylaw, GE wrote again to the SEC asking that it be allowed to omit Mahar’s proposal on the grounds that the company had already implemented it. The staff agreed, stating in its letter to GE that the company’s new proxy access bylaw addresses the essential objective of Mahar’s proposal.