SEC Provides Shareholder Proposal Guidance - Staff Legal Bulletin 14D

Date: August 5, 2009

On November 7, 2008, the Securities and Exchange Commission's Division of Corporation Finance issued Staff Legal Bulletin No. 14D providing information regarding Rule 14a-8 of the Securities Exchange Act of 1934. The bulletin is the fourth of a series of bulletins[1] addressing various aspects of Rule 14a-8, and provides guidance on substantive proposals, as well as on procedural matters relating to the processing and submission of no-action letter requests.

Rule 14a-8
Rule 14a-8 provides shareholders with a highly cost-effective and efficient means for expressing their views on certain governance, business and other corporate matters.  By properly submitting a proposal under Rule 14a-8, the company is required to include the proposal in the company's proxy materials prepared for the meeting and thus the proponent is able to present the proposal at the meeting without incurring the significant printing, mailing and other costs associated with communicating with other shareholders.  Alternatively, if a proposing shareholder fails to satisfy the substantive and procedural requirements of Rule 14a-8, the company is free to exclude the proposal altogether from its proxy materials for the meeting.

Proposals to Amend the Corporate Charter
A company may omit a shareholder proposal recommending, requesting or requiring the board of directors to unilaterally amend the company's charter pursuant to Rule 14a-8(i)(1), Rule 14a-8(i)(2) or Rule 14a-8(i)(6) of the Exchange Act if the company can establish that applicable state law requires that the amendment be initiated by the board of directors, recommended to the shareholders and then approved by shareholders in order to be effective as a matter of law.  However, a company may not omit such proposal pursuant to Rule 14a-8(i)(1), Rule 14a-8(i)(2) or Rule 14a-8(i)(6) of the Exchange Act if such proposal instead recommended or requested that the board of directors "take the steps necessary" to amend the company's charter.

Ownership Requirements
A company can exclude a shareholder's proposal by sending a notice of defect to the proponent if the company's records indicate that the proponent is a holder of record and has not owned the minimum amount of securities for the minimum period prescribed in Rule 14a-8(b) of the Exchange Act.  However, because shareholders can also hold company securities through a broker or bank, company records are not conclusive.  Therefore, the company must first inform the proponent that the proponent must provide proof of ownership that satisfies the requirements of Rule 14a-8(b) of the Exchange Act.

New E-Mail Address
Companies and shareholder proponents can email no-action requests and correspondence related to Rule 14a-8 of the Exchange Act to the SEC at

Proponents who submit proposals under Rule 14a-8 of the Exchange Act must provide the company with a copy of any correspondence submitted in response to the company's no-action request in accordance with Rule 14a-8(k) of the Exchange Act.  Additionally, pursuant to G.9 of Staff Legal Bulletin No. 14, both the company and the proponent should promptly forward to each other copies of all correspondence provided to the SEC in connection with Rule 14a-8 no action requests. 

Current economic conditions will likely lead to the submission of an ever-increasing number of shareholder proposals by individual shareholders and other governance activists for the foreseeable future.  The substantive and procedural guidance in Staff Legal Bulletin No. 14 provides much needed assistance to companies in handling and managing shareholder proposals. The WTP Securities Practice Group is available to assist you in addressing any questions that you may have regarding the matters discussed in this Alert.  You can also visit our website at

1.See Staff Legal Bulletin No. 14 Staff Legal Bulletin No. 14A, Staff Legal Bulletin No. 14B and Staff Legal Bulletin No. 14C.

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