By John Filar Atwood
The Division of Corporation Finance is already receiving no-action requests for the 2020 proxy season, so the new approach to responding to those inquiries is underway, according to Shelley Parratt, a deputy director in the division. In remarks at Practising Law Institute’s conference on securities regulation, she said that the process will involve some oral responses from the staff, as well as a new chart tracking the staff’s no-action positions that will be posted on the Commission’s website.
Parratt said that the chart will indicate the company’s name and whether the staff granted, denied or chose not to comment on its no-action request. The staff currently plans to update the chart once or twice each week, she added.
In some cases, the staff will notify companies and proponents of its decision by email, and then later the same day make the decision publicly available in the chart, she said. While some responses will be oral, others will still receive a letter. Any staff response letters will be linked in the chart, she noted.
September announcement. The new approach, which was announced in September, involves responding to some no-action requests orally instead of in writing. In the summer, division director Bill Hinman discussed the plan, stating that if the staff "gets out of the way," it could lead to improved engagement.
The announcement has generated a considerable amount of uncertainty among stakeholders, but Parratt reassured them that the three possible positions—grant, denial, or declining to express a view—is what the staff has always done. Moreover, she believes that chart will make it easier to track the staff’s work on no-action letters.
Morrison and Foerster’s Martin Dunn concurred that in the September announcement the staff just reiterated the same three options that have always existed. He noted that if the staff decides not to state a view, it simply means that it is not getting involved and the parties are free to litigate the matter. He said that he hopes that declining to state a view does not become the norm this proxy season.
Dunn, who spent a number of years working with no-action letters at the SEC, thinks that oral advice makes sense from a time-management perspective. He cited instances in which proponents submit a lot of letters on an issue, many of which do not advance the matter. It can take up a lot of the staff’s time to maintain those files, he noted, and oral advice would eliminate that.
Concerns about the approach. Dunn does have one concern about oral no-action advice. If the staff calls the proponent, and then calls corporate counsel, how can counsel be sure that the two parties heard the conversation the same way, he said.
Elizabeth Ising, a partner at Gibson Dunn and frequent author of no-action requests, said that she is not too worried about the staff delivering decisions orally. She is concerned about the instances in which the staff issues no decision. Clients are not going to like the uncertainty, she noted, and having to decide whether or not to litigate the matter.
Glass Lewis. Dunn noted that proxy adviser Glass Lewis has decided to take a hard line with respect to the new no-action approach. It recently released its policy stating that in cases where the staff states no view, Glass Lewis will recommend against the company’s governance committee.
Glass Lewis went a step further, stating that if no-action advice is given orally, it expects to see disclosure about it in a company’s proxy. If there is no written record, Glass Lewis plans to give a negative recommendation on the company’s governance committee.
On this point, Stephen Brown, a senior adviser at the KPMG Board Leadership Center, recommended that companies disclose oral no-action advice or the staff’s decision to take no position somewhere in their proxy statements. It is a good idea to demonstrate to investors that the company has gone through the process and heard from the staff, he said.