By John Filar Atwood
The Division of Corporation Finance officially began its new Rule 14a-8 shareholder proposal response procedure yesterday with replies to no-action requests from Oshkosh Corp. and QUALCOMM Inc. The staff posted a chart indicating that it will allow both companies to exclude the subject proposals from their proxy materials. Oshkosh received its response in writing, while QUALCOMM received the first oral response of the 2019-2020 proxy season.
The staff officially announced the new approach in September, indicating that it would respond to some no-action requests orally instead of in writing. At a recent industry conference, Deputy Director Shelley Parratt said the staff plans to update the new chart once or twice each week. In her view, the chart will make it easier to track the staff’s work on Rule 14a-8 no-action letters.
In public appearances over the past year, Division Director William Hinman indicated that the new procedure was born out of necessity following the early 2019 government shutdown. Faced with a large backlog of no-action requests after the shutdown ended, the staff responded orally to many of them to ensure that companies got their responses expeditiously. The system worked well, and the staff decided to adopt it on an ongoing basis.
Written responses. Under the new approach, the staff will continue to respond in writing to many letters, as evidenced by the Oshkosh entry on the new chart. The staff said that one instance in which it will issue a response letter is when it believes doing so would provide some value, such as more broadly applicable guidance about complying with Rule 14a-8.
The new chart indicates whether the staff responded to a request in writing or orally. In a "Staff’s Response" column on the chart, the staff will indicate whether it agreed, disagreed, or expressed no opinion on whether the company may omit the shareholder proposal in question.
The staff has provided clarifying language along with the chart that addresses cases in which a company’s request asserts multiple regulatory bases for exclusion. If the staff concurs that the proposal may be excluded, the decision will be based on one of the bases asserted by the company and the staff will not address the others. If the staff denies a company’s request for exclusion when multiple bases are asserted, the staff will not concur with any of the bases asserted by the company.
Oshkosh. The staff received a request from Oshkosh that it be allowed to omit a proposal received from John Chevedden. The proposal requests that Oshkosh’s board of directors adopt a requirement that director nominees be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders, with a plurality vote standard retained for contested director elections.
Chevedden went on to request that a director who receives less than a majority vote be removed from the board immediately. The proposal allows that if this director has key experience, he or she can transition to work as a consultant. In addition, if the board deems it critical to have this person as a director, then the board can reappoint the director to the board on a temporary basis and report the basis for its decision.
Oshkosh sought to exclude the proposal based on either Rule 14a-8(i)(2) or Rule 14a-8(i)(6). The staff concurred that the company could use (i)(2) as a basis for exclusion. Rule 14a-8(i)(2) states that a shareholder proposal may be omitted from a company’s proxy materials if it would cause the company to violate state law. Oshkosh successfully argued that the proposal, as it relates to incumbent directors, is directly contrary to the Wisconsin Business Corporation Law because there is no action the company or its board could lawfully take to effect immediate removal of a director under Wisconsin law.
QUALCOMM. J. Michael Schaefer submitted a proposal to QUALCOMM asking that the company adopt cumulative voting for future shareholder meetings to permit shareholders the option of voting their shares cumulatively, rather than regularly, for election of directors. QUALCOMM requested, and was granted, permission to exclude the proposal under Rules 14a-8(b) and (f).
Rules 14a-8(b) and (f) permit exclusion if the proponent fails to establish the requisite eligibility to submit the proposal within the required time following the receipt of the company’s request for proof of such eligibility. QUALCOMM advised the staff that although Schaefer provided documentation, he failed to show that he owned the shares continuously for one year as required by the rule. Moreover, the company noted that the shares were actually owned by Schaefer’s sons and not by Schaefer himself.