Contesting Proposals at the SEC
All resolutions must conform to the Shareholder Proposal Rule of the Securities and Exchange Act of 1934 – Rule 14a-8 -- which sets procedural and substantive standards for admissibility. If a company believes a proposal does not meet these standards, it informs the SEC of its intention to omit the proposal and cites specific provisions of the rule. SEC staff attorneys in the Division of Corporation Finance consider company arguments and any countervailing responses from the shareholder proponent before issuing a “no-action” letter. These letters indicate the SEC will take no action if the company leaves the proposal out of the proxy statement. Staff may also disagree with the company’s arguments and state that it believes the proposal should be included in the company’s proxy.
Decisions can be appealed to the full commission and also challenged in the courts, but generally staff decisions are not contested. Both company challenges and staff decisions since 2007 are available on the SEC website (earlier correspondence is not available online.
Rule 14a-8 Grounds for Omission of Shareholder Resolutions
| Procedural Rules | |
|---|---|
| 14a-8(b) | Proponent did not provide sufficient proof of stock ownership. |
| 14a-8(e)(2) | Proposal was filed past the submission deadline. |
| 14a-8(h)(3) | Proposal was submitted but not properly presented within the last two years. |
| Substantive Rules | |
| 14a-8(i)(1) | Is not a proper subject under state law (usually if it is proposed as a requirement, not a recommendation). |
| 14a-8(i)(2) | Contrary to state, federal or foreign laws if implemented. |
| 14a-8(i)(3) | Contains false or misleading statements. |
| 14a-8(i)(4) | Relates to personal claims, grievances or interests. |
| 14a-8(i)(5) | Is not significantly related to the company’s business (less than 5 percent of total assets and less than 5 percent of net earnings & gross sales.) |
| 14a-8(i)(6) | Company lacks the power or authority to implement. |
| 14a-8(i)(7) | Deals with a matter relating to the company’s ordinary business operations and micromanagement. |
| 14a-8(i)(8) | Relates to nomination or election to the board of directors. |
| 14a-8(i)(9) | Conflicts with a management proposal. |
| 14a-8(i)(10) | Has been substantially implemented. |
| 14a-8(i)(11) | Duplicates another proposal that is substantially the same. |
| 14a-8(i)(12) | Is substantially the same as a previous proposal (submitted in the last five years) that did not receive enough support for resubmission (5 percent of the shares cast for and against in the first year, 15 percent the second year and 25 percent thereafter). (Previous thresholds were 3 percent, 6 percent and 10 percent.) |
| 14a-8(i)(13) | Relates to specific amounts of cash or stock dividends. |