On March 22, 2016, the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff”) issued a new Compliance and Disclosure Interpretation (C&DI) regarding how Rule 14a-8 shareholder proposals should be described on issuer proxy cards in compliance with Rule 14a-4(a)(3) of the Securities Exchange Act of 1934. This C&DI was issued in response to complaints the Staff received from shareholder proponents about the lack of specificity on some companies’ proxy cards.
Rule 14a-4(a)(3) requires that the form of proxy “identify clearly and impartially each separate matter intended to be acted upon.” The new C&DI states that, as a result, proxy cards “should clearly identify and describe the specific action on which shareholders will be asked to vote,” regardless of whether it is a company or shareholder proposal.
The C&DI then provides practical examples of the types of generic descriptions that the Staff will view as not satisfying the requirements of Rule 14a-4(a)(3). Under the C&DI, the Staff would not view it as appropriate to describe:
- a company proposal to amend a company’s certificate of incorporation to increase the authorized number of shares as “a proposal to amend our certificate of incorporation;”
- a shareholder proposal asking that the bylaws be amended to allow holders of 10% of a company’s common stock to call special meetings as “a shareholder proposal on special meetings;” or
- a shareholder proposal in the following generic manners: “a shareholder proposal on executive compensation,” “a shareholder proposal on the environment,” “a shareholder proposal, if properly presented” or “Shareholder proposal #3.”
The CD&I does not indicate that a shareholder proponent’s title or description of its own proposal is necessarily determinative of how that proposal should be identified on the company’s proxy card. For example, if a shareholder captions her proposal as “Proposal on Special Meetings,” that description presumably still may not satisfy Rule 14a-4(a)(3). Thus, a company remains ultimately responsible for determining how a shareholder proposal is described on the company’s proxy card.
Because the Staff’s interpretation was based on Rule 14a-4, it applies only to how proposals are addressed on a company’s proxy card. Nevertheless, we would expect the Staff to hold similar views in interpreting the requirement under Rule 14a-16(d)(6) that a company’s Notice of Internet Availability contain a “clear and impartial identification of each separate matter intended to be acted on.” Similarly, to the extent that companies are involved in reviewing and commenting on the form of voting instruction card that is distributed to street name shareholders, best practice is to conform the descriptions of proposals on the voting instruction card to the descriptions on the company’s proxy card. Companies also are subject to the general standard of avoiding misleading statements when identifying or describing proposals within the body of the proxy statement. Notably, the SEC does not have a rule on the form and content of the state law notice that appears at the front of companies’ proxy statements. Thus, if a company has determined that a generic description of shareholder proposals is sufficient for the notice page of the proxy statement under state law, such as stating that the shareholder meeting agenda includes a “shareholder proposal, if properly presented,” the C&DI does not prevent that practice. As a result, the description (if any) of those proposals on the notice page may differ from how each proposal is identified on the proxy card.
The new C&DI is available at https://www.sec.gov/divisions/corpfin/guidance/exchange-act-rule-14a-4a3-301.htm.