Small Entity Compliance Guide Exchange Act Rule 14a-8(i)(8)
July 14, 2017
The Securities and Exchange Commission recently adopted an amendment to Rule 14a-8(i)(8) under the Securities Exchange Act of 1934 to codify the agency's longstanding interpretation of this rule. Rule 14a-8 provides shareholders with an opportunity to place certain proposals in a company's proxy materials for a vote at an annual or special meeting of shareholders. Subsection (i)(8) of the rule permits exclusion of certain shareholder proposals related to the election of directors.
How does Rule 14a-8 operate?
Rule 14a-8 provides an opportunity for a shareholder owning a certain amount of a company's securities to submit a proposal for inclusion in a company's proxy materials, provided that the shareholder complies with certain procedural requirements and the proposal does not fall within one of thirteen substantive bases for exclusion.
Rule 14a-8 operates the same for all entities, regardless of size. The rule operates as follows:
- the shareholder must provide a copy of his or her proposal to the company by the deadline imposed by the rule;
- if the company intends to exclude the proposal from its proxy materials, it must submit its reason(s) for doing so to the Commission and simultaneously provide the shareholder with a copy of that submission. This submission to the Commission of reasons for excluding the proposal is commonly referred to as a no-action request;
- the shareholder may, but is not required to, submit a reply to us with a copy to the company; and
- the staff issues a no-action response that either concurs or does not concur in the company's view regarding exclusion of the proposal.
Rule 14a-8(i)(8) is one of the thirteen substantive bases upon which a company may rely to exclude a shareholder proposal from its proxy materials. The agency's longstanding interpretation of Rule 14a-8(i)(8) - commonly known as the election exclusion - permits a company to omit from its proxy materials any shareholder proposal that would result in an immediate election contest or would set up a process for shareholders to conduct an election contest in the future by requiring the company to include shareholders' director nominees in the company's proxy materials for subsequent meetings. A recent court decision created uncertainty regarding the agency's longstanding interpretation of Rule 14a-8(i)(8). The Commission adopted an amendment to Rule 14a-8(i)(8) that codified the agency's longstanding interpretation of the rule.
The language of the rule, as amended, specifies that a company may exclude a proposal "If the proposal relates to a nomination or an election for membership on the company's board of directors or analogous governing body or a procedure for such nomination or election." In addition, the adopting release for this rule clarifies that the amended rule text relates only to procedures that would result in a contested election, either in the year in which the proposal is submitted or in subsequent years, and does not affect or address any other aspect of the agency's prior interpretation of the exclusion.
The adopting release for the amendment to Rule 14a-8(i)(8) can be found on the SEC's website at http://www.sec.gov/rules/final/2007/34-56914fr.pdf.
The text of Rule 14a-8 can be accessed through the "Rules, Regulations and Schedules" section of the SEC's website at http://www.sec.gov/divisions/corpfin/ecfrlinks.shtml.
Additional materials regarding shareholder proposals generally are available at http://www.sec.gov/divisions/corpfin/cfguidance.shtml.
Contacting the SEC
The SEC's Division of Corporation Finance is happy to assist small companies with questions regarding the amendments and the SEC's proxy rules. The Division's Office of Chief Counsel answers questions submitted by on-line form or by telephone at (202) 551-3500. Questions on other corporate finance matters concerning small companies may be directed to the Division's Office of Small Business Policy through the above on-line form or by telephone at (202) 551-3460.