In light of the directive, the Division of Corporation Finance announced that it would express no views on the application of the rule during the current proxy proposals season.

The Legal Background

Pursuant to Rule 14a-8 of the Exchange Act, shareholders are authorized to submit proposals for inclusion in a company's proxy materials for a vote at a shareholder meeting. The company must include the shareholder proposal in its proxy statement provided that the shareholder satisfies all of the procedural requirements, and the proposal does not fall under one of the rule’s exclusions.

For instance, Exchange Act Rule 14a-8(i)(9) allows a company to exclude a shareholder proposal if it “directly conflicts with one of the company's own proposals to be submitted to shareholders at the same meeting.” Under the SEC’s interpretation of the rule, the shareholder proposal does not need to be identical in order to be excluded. Rather, exclusion is permissible if the proposal “would present alternative and conflicting decisions for the shareholders and would create the potential for inconsistent and ambiguous results.”

Questions have recently arisen regarding the application of Rule 14a-8(i)(9) to “proxy access” proposals in which shareholders seek to amend a corporation’s governing documents to allow them to nominate directors to the board. As these proposals have become more prevalent, so have no-action requests seeking to exclude them.

The Implications for Corporations

Given the inability to obtain no-action relief from the SEC, excluding a shareholder proposal on the basis of Rule 14a-8(i)(9) will be more risky during the 2015 proxy season. In addition to a potential SEC enforcement action, companies also run the risk of shareholder suits. Accordingly, corporations should consult with experienced counsel to explore their legal options.