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U.S. Securities and Exchange Commission

Speech by SEC Staff:
Division Statement Before the Commission Open Meeting Regarding Shareholder Proposals Relating to the Election of Directors


Lillian C. Brown

Senior Special Counsel to the Director
Division of Corporation Finance
U.S. Securities and Exchange Commission

Washington, D.C.
November 28, 2007

On July 25th the Commission voted to publish for comment a proposed amendment to the language of Rule 14a-8(i)(8) of the Securities Exchange Act of 1934 regarding proposals that relate to an election of directors. Today we are recommending that the Commission adopt the amendment as proposed.

Rule 14a-8 provides an opportunity for a shareholder owning a relatively small 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. One of these exclusions, Rule 14a-8(i)(8), permits a company to omit from its proxy materials any proposal that "relates to an election for membership on the company's board of directors or analogous governing body."

The amendment that we are recommending the Commission adopt today would provide certainty to shareholders and companies following a 2006 decision by the U.S. Court of Appeals for the Second Circuit that called into question the appropriate interpretation of this exclusion. The amendment would do so by clarifying the operation of the exclusion in a manner that is consistent with the agency's longstanding interpretation. Under that interpretation, companies may exclude proposals 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.

Accordingly, the language of the rule would be amended to explicitly permit exclusion of proposals that would set up a procedure for shareholders to nominate directors. The language of the rule, as proposed to be 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."

We are recommending that the Commission adopt the proposed amendment without revision. In response to commenters' concerns that the amendment to the rule text could be read as altering prior staff interpretations of proposals addressing election procedures generally, we recommend that the Commission include in the adopting release a discussion making clear that the amendment would relate 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 would not affect or address any other aspect of the agency's prior interpretation of the exclusion.

The rule amendments would take effect 30 days after publication in the Federal Register.

Thank you. We would be happy to answer any questions that you have on the release.


Modified: 11/28/2007